<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 29, 1998
EXECUSTAY CORPORATION
----------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Maryland 000-22941 52-2042280
- --------------------------------------- --------------------------------------- ----------------------
(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification No.)
</TABLE>
7595 Rickenbacker Drive, Gaithersburg, Maryland 20879
-----------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (301) 948-4888
--------------------------
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On May 29, 1998, ExecuStay Corporation of America (the "Company"), a
wholly-owned subsidiary of ExecuStay Corporation ("ExecuStay"),
acquired Accommodations America 1998, Inc., a Texas corporation
("Accommodations"), pursuant to an Agreement and Plan of Merger dated
April 24, 1998, between the Company, ExecuStay, Accommodations and
Trammell Crow Residential Company, a Texas corporation, (the "Merger
Agreement"), for $12,750,000 in cash (the "Cash Consideration") and
1,104,494 shares of common stock of ExecuStay (the "Stock
Consideration"), 20% of which Cash Consideration and 20% of which
Stock Consideration will be held in escrow for 120 days unless a
portion of the escrowed Cash Consideration or Stock Consideration is
used to offset amounts due to ExecuStay or the Company under the
post-closing adjustment and indemnification provisions contained in
the Merger Agreement. Pursuant to the Merger Agreement, each share of
the issued and outstanding capital stock of Accommodations was
converted into a combination of cash and common stock of ExecuStay.
The purchase price was arrived at by arms-length negotiations between
ExecuStay and Accommodations and ExecuStay financed the cash payments
made pursuant to the Merger Agreement with cash on hand and cash
borrowed from Crestar Bank under the Company's acquisition line of
credit. Prior to the effective date of the merger, no affiliate of
Accommodations was an affiliate of ExecuStay.
As of May 29, 1998, Accommodations was merged with and into the
Company and the separate existence of Accommodations ceased.
Accommodations was a provider of interim housing for corporate clients
and professionals. ExecuStay and the Company intend to continue such
operations.
A copy of the Merger Agreement is included as Exhibit 2.1 hereto.
2
<PAGE> 3
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The required financial statements of Accommodations are not included
in this Current Report on Form 8-K. These financial statements will be
provided in an amendment to this Current Report on Form 8-K as soon as
practicable, but not later than 60 days after the date upon which this
Current Report on Form 8-K is required to be filed.
(b) Pro Forma Financial Information
The required pro forma financial information relative to the
acquisition of Accommodations is not included in this Current Report
on Form 8-K. The pro forma financial information will be provided in
an amendment to this Current Report on Form 8-K as soon as
practicable, but not later than 60 days after the date upon which this
Current Report on Form 8-K is required to be filed.
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and between ExecuStay Corporation of America,
ExecuStay Corporation, Accommodations America 1998, Inc. and Trammell Crow
Residential Company, dated as of April 24, 1998.
The following schedules and exhibits to the Agreement and Plan of Merger have been
omitted, and ExecuStay Corporation will file supplementally any such schedules or
exhibits to the Commission upon request:
Schedules to Agreement and Plan of Merger
-----------------------------------------
Schedule 3.05 Required Consents
Schedule 3.07(a) Company Shareholders
Schedule 3.07(b) Agreements to Acquire Company Stock
Schedule 3.09 Undisclosed Liabilities
Schedule 3.11 Absence of Certain Developments
Schedule 3.12(a)(i) Office and Warehouse Leases
Schedule 3.12(a)(ii) Apartment Leases
Schedule 3.12(c) Lien on Tangible Assets
Schedule 3.15 Material Contracts
Schedule 3.16 Intellectual Property
Schedule 3.17 Litigation
Schedule 3.18 Employees
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C>
Schedule 3.19 Employee Benefits Plans
Schedule 3.20 Insurance
Schedule 3.22 Customers and Suppliers
Schedule 3.26 Broker's Licenses
</TABLE>
<TABLE>
<CAPTION>
Exhibits to Agreement and Plan of Merger
----------------------------------------
<S> <C>
Exhibit A List of Directors of Parent and Merger Subsidiary
Exhibit B List of Officers of Parent and Merger Subsidiary
Exhibit C Articles of Incorporation of Merger Subsidiary
Exhibit D Representative of the Company Shareholders
Exhibit E Form of Escrow Agreement
Exhibit F List of Roll-Up Entities
Exhibit G Form of Opinion of Counsel to the Company and Indemnifying Party
Exhibit H List of Key Company Employees
Exhibit I Form of Opinion of Counsel to Parent and Merger Subsidiary
Exhibit J Form of Investor, Lock-up and Registration Rights Agreement
Exhibit K Form of Employment Agreement
Exhibit L Form of Non-Competition Agreement
Exhibit M Form of Customer Referral Agreement
Exhibit N List of Knowledge Designee with Duty to Consult
Exhibit O List of other Knowledge Designees
</TABLE>
4
<PAGE> 5
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: June 12, 1998 EXECUSTAY CORPORATION
/s/ Robert W. Zaugg
----------------------------
Robert W. Zaugg
Chief Operating Officer and
Executive Vice President
<PAGE> 6
INDEX TO EXHIBITS
Exhibit
Number Item
2.1 Agreement and Plan of Merger by and between ExecuStay
Corporation of America, ExecuStay Corporation,
Accommodations America 1998, Inc. and Trammell Crow
Residential Company, dated as of April 24, 1998.
<PAGE> 1
Exhibit 2.1
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
EXECUSTAY CORPORATION,
EXECUSTAY CORPORATION OF AMERICA,
ACCOMMODATIONS AMERICA 1998, INC.
and
TRAMMELL CROW RESIDENTIAL COMPANY
April 24, 1998
================================================================================
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03 Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.05 Articles of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . 2
1.06 Taking of Necessary Action; Further Action . . . . . . . . . . . . . . . . . 3
1.07 The Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II
CONVERSION OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.01 Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.02 Post-Closing Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.03 Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.04 Payment of Total Consideration for Company Stock
and Satisfaction of Shareholder Loans . . . . . . . . . . . . . . . . . . . 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 7
3.01 Incorporation and Corporate Power . . . . . . . . . . . . . . . . . . . . . . 8
3.02 Execution, Delivery; Valid and Binding Agreement . . . . . . . . . . . . . . 8
3.03 Approval of the Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . 9
3.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.05 Governmental Authorities; Consents . . . . . . . . . . . . . . . . . . . . . 9
3.06 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.07 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.08 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.09 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . 11
3.10 No Material Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.11 Absence of Certain Developments . . . . . . . . . . . . . . . . . . . . . . . 11
3.12 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.13 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.14 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.15 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.16 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
3.17 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.18 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.19 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.21 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.22 Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.23 Compliance with Laws; Permits . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.24 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.25 Accredited Investors Status and Investment Intent . . . . . . . . . . . . . . . 22
3.26 Designation of Broker's License . . . . . . . . . . . . . . . . . . . . . . . . 22
3.27 Transfer of Inventory, Equipment and Furniture . . . . . . . . . . . . . . . . 22
3.28 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.29 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY . . . . . . . . . . . . . . . . . 23
4.01 Incorporation and Corporate Power . . . . . . . . . . . . . . . . . . . . . . . 23
4.02 Execution, Delivery; Valid and Binding Agreement . . . . . . . . . . . . . . . 23
4.03 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.04 Merger Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.05 Governmental Authorities; Consents . . . . . . . . . . . . . . . . . . . . . . 24
4.06 Brokerage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.07 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.08 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.09 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10 Parent Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.11 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.12 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE V
COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.01 Conduct of the Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.02 Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.03 Company Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.04 Regulatory Filings; Good Faith Cooperation . . . . . . . . . . . . . . . . . . 29
5.05 Preparation of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.06 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.07 No Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.08 Audited Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.09 Terminated Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.10 Notice of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VI
COVENANTS OF PARENT AND MERGER SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.01 Regulatory Filings; Good Faith Cooperation . . . . . . . . . . . . . . . . . 32
6.02 Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.03 Notice of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.04 Continued Employment of Gary Abrahams . . . . . . . . . . . . . . . . . . . . 33
6.05 No Issuances of Stock at Prices Below the Parent Stock Merger Price . . . . . 33
6.06 Appointment of Paul Reeve to Parent Board . . . . . . . . . . . . . . . . . . 33
6.07 Access to Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.08 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.09 Tax Treatment Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.01 Conditions to Parent's and Merger Subsidiary's Obligations . . . . . . . . . 34
7.02 Conditions to the Company's and Indemnifying Party's Obligations . . . . . . . 38
ARTICLE VIII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.01 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.03 Prompt Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE IX
ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.01 Registration Rights and Lock-up Agreements . . . . . . . . . . . . . . . . . 41
9.02 Employment Agreement and Directorship Arrangements . . . . . . . . . . . . . 41
9.03 Non-Competition Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.04 Transitionary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 42
9.05 Customer Referral Agreements . . . . . . . . . . . . . . . . . . . . . . . . 42
9.06 Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE X
SURVIVAL; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
10.01 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . 42
10.02 Indemnification by the Company and Indemnifying Party . . . . . . . . . . . . 42
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
10.03 Indemnification by Parent and Merger Subsidiary . . . . . . . . . . . . . . . 44
10.04 Method of Asserting Claims . . . . . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE XI
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.01 Press Releases and Announcements . . . . . . . . . . . . . . . . . . . . . . 47
11.02 Expenses; HSR Filing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.03 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.05 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.06 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.07 Complete Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.08 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.09 Amendments to Disclosure Letters . . . . . . . . . . . . . . . . . . . . . . 49
11.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
-iv-
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") dated as of April
24, 1998, is made and entered into by and among ExecuStay Corporation, a
publicly held Maryland corporation ("Parent"), ExecuStay Corporation of
America, a Maryland corporation and a wholly owned subsidiary of Parent
("Merger Subsidiary"), Accommodations America 1998, Inc., a Texas corporation
(the "Company"), and, for purposes of Section 10.02 and 10.04 only, Trammell
Crow Residential Company, a Texas corporation ("Indemnifying Party"). Merger
Subsidiary and the Company are hereinafter sometimes collectively referred to
as the "Constituent Corporations."
WHEREAS, the respective Boards of Directors of Parent, Merger
Subsidiary and the Company have determined that it is advisable and in the best
interests of the respective corporations and their shareholders that the
Company be merged with and into Merger Subsidiary in accordance with the
General Corporation Law of the State of Maryland (the "MGCL"), the Texas
Business Corporation Act (the "TBCA") and the terms of this Agreement pursuant
to which Merger Subsidiary will be the surviving corporation and will remain a
wholly owned subsidiary of Parent (the "Merger"); and
WHEREAS, Indemnifying Party's agreement to indemnify Parent and Merger
Subsidiary for certain potential liabilities following the Merger is a material
inducement to the agreements of Parent and Merger Subsidiary to the Merger; and
WHEREAS, Parent, Merger Subsidiary and the Company desire to make
certain representations, warranties, covenants, and agreements in connection
with, and establish various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements set forth in this Agreement and in the Plan of Merger,
the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger. At the Effective Time (as defined in Section 1.03
hereof) subject to the terms and conditions of this Agreement and the Articles
of Merger (as defined in Section 1.03 hereof), the Company shall be merged with
and into Merger Subsidiary, the separate existence of the Company shall cease,
and Merger Subsidiary shall continue as the surviving corporation under the
corporate name it possesses immediately prior to the Effective Time. The
Merger Subsidiary, in its capacity as the corporation surviving the Merger, is
hereinafter sometimes referred to as the "Surviving Corporation."
-1-
<PAGE> 7
1.02 Effect of Merger. The effect of the Merger shall be as set
forth in Section 3-114 of the MGCL and the Surviving Corporation shall succeed
to and possess all the properties, rights, privileges, immunities, powers,
franchises and purposes, and be subject to all the duties, liabilities, debts,
obligations, restrictions and disabilities, of the Constituent Corporations,
all without further act or deed.
1.03 Effective Time. Subject to the satisfaction or waiver of the
conditions set forth in Article VII of this Agreement, the consummation of the
Merger shall be effected on the Closing Date (as defined in Section 1.07), and
the parties hereto will cause articles of merger or other appropriate documents
(the "Articles of Merger"), to be executed, delivered and filed with the State
Department of Assessments and Taxation of Maryland and the Secretary of State
of the State of Texas in accordance with the MGCL and the TBCA, respectively.
The Merger shall become effective immediately upon the later of (i) the filing
of such Articles with the State Department of Assessments and Taxation of
Maryland or (ii)the filing of the Articles of Merger with the Secretary of
State of the State of Texas, or at such later time that the parties have agreed
upon and designated in such filings in accordance with applicable law. The
date and time on which the Merger shall become effective is referred to herein
as the "Effective Time."
1.04 Directors and Officers. The respective directors of each of
Parent and Merger Subsidiary immediately following the Effective Time shall be
the persons named on Exhibit A. Said directors of the Surviving Corporation
shall hold office for the term specified in, and subject to the provisions
contained in, the Articles of Incorporation and Bylaws of the Surviving
Corporation and applicable law. If, at or after the Effective Time, a vacancy
shall exist on the Board of Directors or in any of the offices of the Surviving
Corporation, such vacancy shall be filed in the manner provided in the Articles
of Incorporation and Bylaws of the Surviving Corporation. The respective
officers of each of Parent and Merger Subsidiary immediately following the
Effective Time shall be the persons named on Exhibit B, all of whom shall serve
until the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be.
1.05 Articles of Incorporation; Bylaws. From and after the
Effective Time and until further amended in accordance with applicable law, the
Articles of Incorporation of Merger Subsidiary as in effect immediately prior
to the Effective Time, a copy of which is attached hereto as Exhibit C, shall
remain the Articles of Incorporation of the Surviving Corporation. From and
after the Effective Time and until further amended in accordance with law, the
Bylaws of Merger Subsidiary as in effect immediately prior to the Effective
Time shall remain the Bylaws of the Surviving Corporation.
-2-
<PAGE> 8
1.06 Taking of Necessary Action; Further Action. Parent, Merger
Subsidiary and the Company, respectively, shall each use commercially
reasonable efforts to take all such action as may be necessary or appropriate
to effectuate the Merger under the MGCL and the TBCA at the time specified in
Section 1.03. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purposes of this Agreement and to vest
the Surviving Corporation with full right, title and possession to all
properties, rights, privileges, immunities, powers and franchises of either of
the Constituent Corporations, the officers of the Surviving Corporation are
fully authorized in the name of each Constituent Corporation or otherwise to
take, and shall take, all such lawful and necessary action.
1.07 The Closing.
(a) The closing of the transactions contemplated by this
Agreement (the "Closing") will take place on or before June 1, 1998 at the
offices of Parent in Gaithersburg, Maryland or at such other place and time as
is mutually agreeable to the parties, and will be effective as of the Effective
Time; provided that if the Closing does not occur on or prior to such date due
to the failure of a closing condition to be satisfied, the parties to this
Agreement may, by mutual written agreement, at any time prior to or after June
1, 1998, extend the Closing Date to a date not later than June 30, 1998. The
date in which the Closing is held is referred to hereinafter as the "Closing
Date."
(b) The parties shall deliver to each other the documents
required to be delivered pursuant to Article VII hereof at the Closing.
ARTICLE II
CONVERSION OF SECURITIES
2.01 Conversion of Securities. Subject to the adjustments set
forth in Section 2.02 hereof, the total consideration to be paid by Parent and
Merger Subsidiary in the Merger shall be $25,500,000 (the "Total
Consideration"), payable $12,750,000 in cash (the "Cash Consideration") and the
remainder by the delivery as set forth in Section 2.01(a) below of 1,104,494
shares of common stock of Parent (the "Parent Common Stock"), $.01 par value
(the "Stock Consideration"), valued for purposes of this Agreement at $11.54375
per share (the "Parent Stock Merger Price"). A part of the Cash Consideration,
which part shall be determined by the Company at Closing, shall be used to
repay the outstanding principal balance plus all accrued and unpaid interest
thereon due on the Closing Date (the "Shareholder Loans") on certain loans made
or that will have been made to the Company prior to the Closing by certain
shareholders of the Company (shareholders of the Company shall hereinafter be
referred to as the "Company Shareholders") and the Company shall distribute at
the Closing to the Representative on behalf of such Company
-3-
<PAGE> 9
Shareholders an amount in immediately available funds equal to the Shareholder
Loans. The difference between the Total Consideration and the Shareholder
Loans shall constitute and hereinafter be referred to as the "Merger
Consideration." To the extent that the Merger Consideration is adjusted
pursuant to Section 2.02 hereof, the Cash Consideration and Stock Consideration
shall be adjusted in equal proportions. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Subsidiary, the
Company, Indemnifying Party or the holder of any of the following securities:
(a) the shares of common stock, $.01 par value per share,
of the Company ("Company Stock"), issued and outstanding immediately
prior to Closing (other than the shares canceled pursuant to Section
2.01(b) below) shall be canceled and extinguished and be converted
into the Merger Consideration. Subject to the escrow provisions of
Section 2.03, the Merger Consideration payable to each Company
Shareholder shall be paid either (i) entirely in cash for those
Company Shareholders who are not designated as Accredited Investors by
the Company or who have not signed and delivered at Closing the
Investor, Lock-up and Registration Rights Agreement (as defined in
Section 9.01 below), and (ii) in a combination of cash and Parent
Common Stock, in relative amounts to be determined by the Company, for
those Company Shareholders who are designated as Accredited Investors
by the Company and who have signed and delivered at Closing the
Investor, Lock-up and Registration Rights Agreement. No fractional
shares of Parent Stock will be issued. In lieu of any such fractional
shares, each Company Shareholder who would otherwise have been
entitled to a fraction of a share of Parent Common Stock shall be
entitled to receive from Parent a cash payment (without interest) in
lieu of such fractional share equal to such fraction multiplied by the
Parent Stock Merger Price. Such payment shall have no impact upon the
amount of the Cash Consideration. The Parent Common Stock shall have
the registration rights described in the Investor, Lock-up and
Registration Rights Agreements described in Section 9.01 hereof and
bear the restrictive legend set forth in Section 2.04(d) hereof;
(b) each share of Company Stock held directly or
indirectly by the Company shall be canceled and extinguished and no
payment shall be made with respect thereto;
(c) each share of common stock, $.01 par value, of Merger
Subsidiary issued and outstanding immediately prior to the Effective
Time shall be unaffected by the Merger.
-4-
<PAGE> 10
2.02 Post-Closing Adjustments.
(a) The Merger Consideration shall be increased or decreased to
the extent that the Company's Net Working Capital (defined as current assets,
including cash, minus total liabilities), as shown on the audited balance sheet
as of the Closing Date delivered to Parent and Merger Subsidiary subsequent to
the Closing (the "Closing Date Audited Balance Sheet"), is greater or less than
$1,975,657. To the extent that the Net Working Capital as shown on the Closing
Date Audited Balance Sheet is less than $1,975,657, then the Merger
Consideration shall be decreased in an amount equal to such difference. To the
extent that the Net Working Capital as shown on the Closing Date Audited
Balance Sheet is greater than $1,975,657, then the Merger Consideration shall
be increased in an amount equal to such excess. Any amounts determined to be
due under the Escrow Agreement to Merger Subsidiary pursuant to this Section
2.02(a) shall be satisfied first from the Escrow Consideration (as defined in
Section 2.03 below), and the remaining amount due, if any, shall be a liability
of the Indemnifying Party.
(b) Subject to Section 2.02(c), the Merger Consideration shall be
decreased to the extent that the amount of net receivables as of Closing (as
shown on the Closing Date Audited Balance Sheet) are not collected by Merger
Subsidiary on or before the close of business ninety (90) days after the
Closing Date (the "Uncollected Receivables"). Merger Subsidiary agrees that it
will use commercially reasonable efforts to collect the Uncollected Receivables
on or before the close of business ninety (90) days after the Closing. Within
one hundred (100) days of Closing, the Merger Subsidiary shall notify a
representative (the "Representative") of the Company Shareholders, listed on
Exhibit D hereto, and the Escrow Agent (as defined in Section 2.03 below), of
the amount of Uncollected Receivables (the "Notice"). Such Notice shall
constitute a "Claim Notice" under the Escrow Agreement, and any amounts due to
Merger Subsidiary under this Section 2.02(b) shall be collected by Merger
Subsidiary as described in the Escrow Agreement. Any amounts determined to be
due under the Escrow Agreement to Merger Subsidiary pursuant to this Section
2.02(b) shall be satisfied first from the Escrow Consideration (as defined in
Section 2.03 below), and the remaining amount due, if any, shall be a liability
of the Indemnifying Party. After payment of the Uncollected Receivables in
accordance with this Section 2.02(b), Indemnifying Party or its affiliates
shall be entitled to initiate and prosecute proceedings to collect any
Uncollected Receivables, and shall be entitled to retain all amounts so
collected.
(c) Merger Subsidiary acknowledges that certain receivables of the
Company have been or, as of Closing, will have been written off as
uncollectible (such receivables are referred to herein as "Bad Debts") and such
Bad Debts will not be included in the amount of net receivables shown on the
Closing Date Audited Balance Sheet. Although the Merger Subsidiary and the
Surviving Corporation have no obligation to pursue the collection of the Bad
Debts, Merger Subsidiary
-5-
<PAGE> 11
agrees that the amount of any Bad Debts collected by the Surviving Corporation
after the Effective Time shall, if collected within 90 days after Closing, be
offset against any adjustment otherwise made in favor of the Merger Subsidiary
under Section 2.02(b) or, if collected subsequent to the date that is 90 days
after Closing, be paid to the Company Shareholders in the manner directed by
the Representative of the Company.
2.03 Escrow. Parent and Merger Subsidiary shall, on or before
Closing, deposit in an escrow account (the "Escrow Account") with an escrow
agent acceptable to each of Parent, the Representative, the Company and
Indemnifying Party (the "Escrow Agent"), (i) $2,550,000 in cash (the "Cash
Escrow Amount"), which shall earn interest in escrow, and (ii) 220,899 shares
of Parent Common Stock (the Cash Escrow Amount and the escrowed Parent Common
Stock are together referred to as "Escrowed Consideration"). Such deposits
shall be made pursuant to an escrow agreement in the form attached hereto as
Exhibit E (the "Escrow Agreement"), which shall be executed by Parent, Merger
Subsidiary, the Representative, Indemnifying Party and the Escrow Agent on or
before the Closing. The Escrowed Consideration shall be available to offset
any amounts due to Merger Subsidiary under Section 2.02 above and any amounts
due to Parent or Merger Subsidiary pursuant to Article X hereof. Any such
amounts due shall be payable from the Escrow Account in the manner provided in
the Escrow Agreement. Release of the remaining Escrowed Consideration,
together with interest thereon, shall be made to the Representative on behalf
of the Company Shareholders subject to and in accordance with the provisions of
the Escrow Agreement.
2.04 Payment of Total Consideration for Company Stock and
Satisfaction of Shareholder Loans.
(a) At Closing, the Company shall deliver to Parent and
the Merger Subsidiary all certificates representing shares of Company Stock to
be canceled and extinguished at the Effective Time pursuant to Section 2.01 to
effect the exchange of such certificate or certificates on behalf of the
Company Shareholders. Upon such delivery, Merger Subsidiary shall distribute
to the Representative on behalf of the Company Shareholders, (i) immediately
available funds in an amount equal to $10,200,000 less the amount utilized to
repay the Shareholder Loans, and (ii)certificates representing 883,595 shares
of Parent Common Stock, made in the names of the Company Shareholders specified
by the Representative, provided that only those persons who have executed and
delivered at Closing an Investor, Lock-up and Registration Rights Agreement
shall receive Parent Common Stock. The remaining Merger Consideration shall be
escrowed as provided in Section 2.03 above. Parent and Merger Subsidiary
acknowledge that a portion of the Cash Consideration shall be utilized to repay
the Shareholder Loans and, accordingly, such loans and accrued interest shall
not be included as liabilities on the Closing
-6-
<PAGE> 12
Date Audited Balance Sheet, provided that such loans were not accounted for as
liabilities on the Latest Balance Sheet (as defined in Section 3.08 below).
(b) If payment of the Stock Consideration is to be made
to a person other than the person in whose name the certificate surrendered in
exchange therefor is registered, it shall be a condition to such payment and
delivery that the Company Stock certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer, and that the person
requesting such payment shall pay to Merger Subsidiary any transfer and other
taxes required by reason of such payment in any name other than that of the
registered holder of the certificate surrendered or shall have established to
the satisfaction of Parent that such tax either has been paid or is not
payable.
(c) After the Closing, there shall be no transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Stock which were outstanding immediately prior to the Closing. After the
Closing, no dividends, interests or other distribution on Company Stock shall
be paid to any Company Shareholder other than distributions of cash and/or
Parent Common Stock made pursuant to the Escrow Agreement.
(d) The Company acknowledges that the certificates of
Parent Common Stock to be delivered at Closing shall bear the following
restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. SUCH SHARES OF STOCK
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, IN THE
ABSENCE OF REGISTRATION, WITHOUT EITHER AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT
SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION OR
QUALIFICATION UNDER THE FEDERAL SECURITIES ACT OF 1933, AS
AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by the
Company to Parent and Merger Subsidiary on the date hereof (the "Company
Disclosure Schedule"), which Company Disclosure Schedule sets forth the
exceptions to the representations and warranties contained in this Article III
under captions referencing the Sections to which such exceptions apply, the
Company hereby
-7-
<PAGE> 13
makes the following representations and warranties to Parent and Merger
Subsidiary. The term "Predecessors" used throughout this Article III and
throughout the rest of this Agreement refers to each of the entities whose
assets were transferred to the Company effective January 2, 1998 (the
"Roll-Up"), a list of which is attached to this Agreement as Exhibit F.
3.01 Incorporation and Corporate Power. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Texas and has the requisite corporate power and authority
to execute and deliver this Agreement and the Articles of Merger and to perform
its obligations hereunder and thereunder. The Company has obtained all
requisite approvals of and consents to the Merger from the Company
Shareholders, and no further consent or approval by the Company Shareholders of
this Agreement or the Articles of Merger or the transactions contemplated
hereby, including the Merger, is required. The Company has the corporate power
and authority and all authorizations and certifications necessary to own and
operate its properties and to carry on its business as now conducted. The
copies of the Company's Articles of Incorporation and Amended and Restated
Bylaws which have been furnished by the Company to Parent and Merger Subsidiary
prior to the date hereof reflect all amendments made thereto and are correct
and complete as of the date hereof. The Company is qualified to do business as
a foreign corporation in every jurisdiction in which the nature of its business
or its ownership of property requires it to be so qualified, except for those
jurisdictions in which the failure to be so qualified would not, individually
or in the aggregate, have a material adverse effect on the Company's business
or results of operations.
3.02 Execution, Delivery; Valid and Binding Agreement. The
execution, delivery and performance of this Agreement by the Company and
Indemnifying Party and the execution and delivery of Articles of Merger by the
Company, and the execution and delivery of documents required to effectuate and
consummate the Roll-Up by the Company, its Predecessors and their shareholders
and partners, and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate
action, and no other corporate proceedings on their part are necessary to
authorize the execution, delivery and performance of this Agreement and the
Articles of Merger. This Agreement has been duly executed and delivered by the
Company and Indemnifying Party and, assuming the due authorization, execution
and delivery hereof by Parent and Merger Subsidiary, constitutes the valid and
binding obligation of the Company and Indemnifying Party, enforceable against
the Company and Indemnifying Party, in accordance with its terms, and the
Articles of Merger, when executed and delivered by the Company, will constitute
the valid and binding obligation of the Company, enforceable in accordance with
its terms, except as such enforcement may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium (whether general or specific ) or
similar laws now or hereafter in effect relating to creditors' rights
-8-
<PAGE> 14
generally and (ii) general principles of equity (regardless of whether such
enforcement is sought in a proceeding in equity or at law).
3.03 Approval of the Plan of Merger. The Company hereby represents
that its Board of Directors has, by resolutions duly adopted at a meeting held
on, or by written consent dated, April __, 1998, approved this Agreement and
the Articles of Merger and the transactions contemplated hereby and thereby,
including the Merger. If required by the organizational documents of
Indemnifying Party or applicable law, the board of directors of Indemnifying
Party has approved this Agreement by written resolution. None of the
resolutions described in this Section 3.03 has been amended or otherwise
modified in any respect since the date of adoption thereof and all such
resolutions remain in full force and effect.
3.04 No Breach. The execution, delivery and performance of this
Agreement by the Company and Indemnifying Party, and the execution and delivery
of Articles of Merger by the Company, and the consummation by the Company and
Indemnifying Party of the transactions contemplated hereby and thereby do not
(i) conflict with or result in any breach of any of the provisions of,
constitute a default under, result in a violation of, result in the creation of
a right of termination or acceleration or any lien, security interest, charge
or encumbrance upon any assets of the Company or Indemnifying Party, or (ii)
require any authorization, consent, approval, exemption or other action by or
notice to any court or other governmental body, under the provisions of the
Articles of Incorporation or Bylaws of the Company or Indemnifying Party or any
indenture, mortgage, lease, loan agreement or other agreement or instrument by
which the Company or Indemnifying Party is bound or affected, or any law,
statute, rule or regulation or order, judgment or decree to which the Company
or Indemnifying Party is subject except, in either case, for those required
under the HSR Act (as defined below) or for those the conflict, breach,
default, or violation of, or the failure of which to make or obtain any such
authorized consent, approval or exemption, would not have a material adverse
effect on the Company or the Indemnifying Party, as the case may be.
3.05 Governmental Authorities; Consents. Except for the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act"),
and except for the filing of the Articles of Merger with the Secretary of State
of the State of Texas, the Company and Indemnifying Party are not required to
submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement or the
Articles of Merger or the consummation of the transactions contemplated hereby
or thereby, except for those the failure of which to make or obtain would not
have a material adverse effect on the Company or the Indemnifying Party, as the
case may be. Except as set forth in the Company Disclosure Schedule under the
caption referencing this Section 3.05
-9-
<PAGE> 15
assuming the filings contemplated by the preceding sentence are obtained or
made, no consent, approval or authorization of any governmental or regulatory
authority or any other party or person (except the approval of the Plan of
Merger by the Company Shareholders) is required to be obtained by the Company
or Indemnifying Party in connection with its execution, delivery and
performance of this Agreement or the Articles of Merger or the transactions
contemplated hereby or thereby, except for those the failure of which to make
or obtain would not have a material adverse effect on the Company or the
Indemnifying Party, as the case may be.
3.06 Subsidiaries. The Company does not have any subsidiaries or
own any stock, partnership interest, joint venture interest or any other
security or ownership interest issued by any other corporation, organization or
entity.
3.07 Capital Stock.
(a) The authorized capital stock of the Company consists
of 1,000 shares of Common Stock, par value $.01 per share, of which, as of the
date hereof, 109.98 shares are issued and outstanding. Schedule 3.07(a) of the
Company Disclosure Schedule sets forth the name of each Company Shareholder and
the amount of Company Stock held by each. All of such outstanding shares of
Company Stock have been duly authorized and are validly issued, fully paid and
nonassessable. The Company has no other equity securities or securities
containing any equity features authorized, issued or outstanding.
(b) There are no agreements or other rights or
arrangements existing which provide for the sale or issuance of capital stock
by the Company and there are no rights, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from the Company any shares of capital stock or other
securities of the Company of any kind. Except as set forth in the Company
Disclosure Schedule referencing this Section 3.07(b), there are no agreements
or other obligations (contingent or otherwise) which may require the Company to
repurchase or otherwise acquire any shares of its capital stock. There are no
stock appreciation, phantom or similar rights outstanding based upon the book
value or any other attribute of any of the capital stock of the Company, or the
earnings or other attributes of the Company.
3.08 Financial Statements. The Company has delivered to Parent
copies of unaudited balance sheet, as of December 31, 1997, of the Predecessors
(the "Latest Balance Sheet") and the unaudited statements of earnings for the
year ended December 31, 1997 (such statements and the Latest Balance Sheet
being herein referred to as the "Latest Financial Statements"). The Company
shall use reasonable efforts to ensure that the audited balance sheets of the
Predecessors as of December 31, 1996, December 31, 1997, and the Company as of
the Closing Date and the audited statements of earnings, shareholders' equity
and cash flows of the Predecessors for
-10-
<PAGE> 16
each of the periods ended December 31, 1996, December 31, 1997 and the Company
as of the Closing Date (collectively, the "Audited Financial Statements") are
delivered to Merger Subsidiary and Parent within forty-five (45) days of the
Closing Date. The Latest Financial Statements and the Audited Financial
Statements are or will be based upon the information contained in the books and
records of the Company and the Predecessors, as the case may be, and do or will
fairly present the financial condition of the Company and the Predecessors, as
the case may be, as of the dates thereof and results of operations for the
periods referred to therein. The Audited Financial Statements will be prepared
in accordance with generally accepted accounting principles ("GAAP"),
consistently applied throughout the periods indicated.
3.09 Absence of Undisclosed Liabilities. To the Company's
knowledge, except as reflected in the Latest Balance Sheet, the Company has no
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction, or
any state of facts existing, with respect to or based upon transactions or
events heretofore occurring, except (i) liabilities which have arisen after the
date of the Latest Balance Sheet in the ordinary course of business (none of
which is a material uninsured liability for breach of contract, breach of
warranty, tort, infringement, claim or lawsuit), (ii) liabilities that,
individually or in the aggregate, would not have a material adverse effect on
the Company or (iii) as otherwise set forth in the Company Disclosure Schedule
under the caption referencing this Section 3.09.
3.10 No Material Adverse Changes. To the Company's knowledge,
since the date of the Latest Balance Sheet (the "Balance Sheet Date"), there
has been no material adverse change in the assets, financial condition,
operating results, customer, employee or supplier relations or business
condition of the Company.
3.11 Absence of Certain Developments. Except as set forth on the
Company Disclosure Schedule referencing this Section 3.11, since the Balance
Sheet Date, the Company has not:
(a) borrowed any amount or incurred or become subject to any
liability in excess of $100,000, except (i) current liabilities incurred in the
ordinary course of business, (ii) liabilities under contracts and leases
entered into in the ordinary course of business or (iii) liabilities related to
contributions or loans by Company Shareholders, the proceeds of which are used
for working capital;
(b) mortgaged, pledged or subjected to any lien, charge or
any other encumbrance, any of its assets with a fair market value in excess of
$100,000, except (i) liens for current property taxes not yet due and payable,
(ii) liens imposed by law and incurred in the ordinary course of business for
obligations not yet due to
-11-
<PAGE> 17
carriers, warehousemen, laborers, materialmen and the like, (iii) liens in
respect of pledges or deposits under workers' compensation laws, (iv) liens set
forth under the caption referencing this Section 3.11 in the Company Disclosure
Schedule, or (v) liens voluntarily created in the ordinary course of business,
all of which liens aggregate less than $100,000;
(c) discharged or satisfied any lien or encumbrance or paid
any liability, in each case with a value in excess of $100,000, other than
current liabilities paid in the ordinary course of business;
(d) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders) any
tangible assets with a fair market value in excess of $100,000, or canceled any
debts or claims, in each case, except in the ordinary course of business;
(e) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders) any
patents, trademarks, trade names, copyrights, trade secrets or other intangible
assets;
(f) to the Company's knowledge, disclosed, to any person
other than Parent or Merger Subsidiary and authorized representatives of Parent
or Merger Subsidiary, any proprietary confidential information, other than
pursuant to a confidentiality agreement prohibiting the use or further
disclosure of such information, which agreement is identified in the Company
Disclosure Schedule under the caption referencing this Section 3.11 and is in
full force and effect on the date hereof;
(g) waived any rights of material value or suffered any
extraordinary losses or adverse changes in collection loss experience, whether
or not in the ordinary course of business or consistent with past practice;
(h) declared or paid any dividends or other distributions
with respect to any shares of the Company's capital stock or redeemed or
purchased, directly or indirectly, any shares of the Company's capital stock or
any options;
(i) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
warrants, options or other rights to acquire its equity securities, or any
bonds or debt securities except in connection with the Roll-Up;
(j) taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance
with past custom and practice other than the transactions contemplated by this
Agreement or the Roll-Up;
-12-
<PAGE> 18
(k) suffered any material theft, damage, destruction or loss
of or to any property or properties owned or used by it, whether or not covered
by insurance;
(l) made or granted any bonus or any wage, salary or
compensation increase to any employee who earns more than $50,000 per year and
who will become an employee of Parent after the Closing, or made or granted any
increase in any employee benefit plan or arrangement, or amended or terminated
any existing employee benefit plan or arrangement, or adopted any new employee
benefit plan or arrangement or made any commitment or incurred any liability to
any labor organization;
(m) made any single capital expenditure or commitment
therefor in excess of $50,000;
(n) made any loans or advances to, or guarantees for the
benefit of, any persons such that the aggregate amount of such loans, advances
or guarantees at any time outstanding is in excess of $50,000, other than
endorsement of checks in the ordinary course of business; or
(o) made charitable contributions or pledges which in the
aggregate exceed $10,000.
3.12 Title to Properties.
(a) The Company does not own any real property. The real
property demised by the leases (the "Office Leases") described under the caption
referencing this Section 3.12 in the Company Disclosure Schedule constitutes
all of the office and warehouse property used or occupied by the Company. The
real property demised by the apartment leases described under the caption
referencing this Section 3.12 in the Company Disclosure Statement constitutes
all of the apartment property used by the Company (the "Apartment Leases" and,
together with the Office Leases, the "Leases").
(b) The Leases are in full force and effect, and the Company
holds a valid and existing leasehold interest under each of the Leases for the
term set forth under such caption in the Company Disclosure Schedule. The
Company has delivered to Parent and Merger Subsidiary complete and accurate
copies of each of the Office Leases, and none of the Office Leases has been
modified in any material respect, except to the extent that such modifications
are disclosed by the copies delivered to Parent and Merger Subsidiary. To the
knowledge of the Company, the Company is not in default, and no circumstances
exist which, if unremedied, would, either with or without notice or the passage
of time or both, result in such default under any of the Leases; nor, to the
best knowledge of the Company, is any other party to any of the Leases in
default.
-13-
<PAGE> 19
(c) The Company owns good title to each of the tangible
assets reflected on the Latest Balance Sheet or acquired since the date
thereof, free and clear of all liens and encumbrances, except for (i) liens for
current taxes not yet due and payable, (ii) liens set forth under the caption
referencing this Section 3.12 in the Company Disclosure Schedule, (iii) assets
disposed of since the date of the Latest Balance Sheet in the ordinary course
of business, (iv) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers and
materialmen and (v) liens in respect of pledges or deposits under workers'
compensation laws, all of which liens aggregate less than $250,000.
(d) Except as set forth in the Company Disclosure Schedule
under the caption referencing this Section 3.12, the Company's knowledge, all
of the tangible assets necessary for the conduct of the Company's business as
currently conducted are in good condition and repair, ordinary wear and tear
excepted, and are usable in the ordinary course of business.
3.13 Accounts Receivable. The accounts receivable reflected on the
Latest Balance Sheet are valid receivables, are not subject to valid
counterclaims or setoffs, and are collectible in accordance with their terms,
except to the extent of the bad debt reserve reflected on the Latest Balance
Sheet or to the extent any such receivables have been written off as
uncollectible prior to the Effective Time.
3.14 Tax Matters.
(a) Each of the Company, its Predecessors and any subsidiary,
any affiliated, combined or unitary group of which the Company or any
subsidiary is or was a member, any "Plans" (as defined in Section 3.19 hereof),
as the case may be (each, a "Tax Affiliate" and, collectively, the "Tax
Affiliates"), has: (i) timely filed after giving effect to any applicable
filing extension (or has had timely filed on its behalf) all returns,
declarations, reports, estimates, information returns, and statements
("Returns") required to be filed or sent by it in respect of any "Taxes" (as
defined in subsection (h) below) or required to be filed or sent by it by any
taxing authority having jurisdiction, and all such returns are accurate and
complete in all material respects; (ii) timely and properly paid (or has had
paid on its behalf) all Taxes shown to be due and payable on such Returns;
(iii) all taxes which will be due and payable, whether now or hereafter, for
any period ending on, prior to or including the Effective Time, have been paid
by or on behalf of the Company or are reflected on the books of the Company as
an accrued Tax liability determined in a manner which is consistent with past
practices and the Latest Balance Sheet, without taking account of the Merger;
(iv) complied with all applicable laws, rules, and regulations relating to the
withholding of Taxes and the payment thereof (including, without limitation,
withholding of Taxes under Sections 1441 and 1442 of the Internal Revenue Code
of 1986, as amended (the "Code"), or similar
-14-
<PAGE> 20
provisions under any foreign laws), and timely and properly withheld from
individual employee wages and paid over to the proper governmental authorities
all amounts required to be so withheld and paid over under all applicable laws.
(b) No deficiency for any Taxes has been proposed, asserted
or assessed against the Company or the Tax Affiliates that has not been
resolved and paid in full. No waiver, extension or comparable consent given by
the Company or the Tax Affiliates regarding the application of the statute of
limitations with respect to any Taxes or Returns is outstanding, nor is any
request for any such waiver or consent pending. There has been no Tax audit or
other administrative proceeding or court proceeding with regard to any Taxes or
Returns, nor is any such Tax audit or other proceeding pending, nor has there
been any notice to the Company by any Taxing authority regarding any such Tax,
audit or other proceeding, or, to the best knowledge of the Company, is any
such Tax audit or other proceeding threatened with regard to any Taxes or
Returns. The Company does not expect the assessment of any additional Taxes of
the Company or the Tax Affiliates and is not aware of any unresolved questions,
claims or disputes concerning the liability for Taxes of the Company or the Tax
Affiliates which would exceed the estimated reserves established on its books
and records.
(c) Neither the Company nor any Tax Affiliate is a party to
any agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code and the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be made
by the Company or any Tax Affiliate that are not deductible (in whole or in
part) under Section 280G of the Code.
(d) All transactions required to be reported in Returns that
could give rise to an underpayment of tax (within the meaning of Section 6662
of the Code) were reported on such Returns in a manner for which there is
substantial authority or were adequately disclosed on the Returns required in
accordance with Section 6662(d)(2)(B) of the Code.
(e) Neither the Company nor any Tax Affiliate has engaged in
any transaction that would result in a deemed election under Section 338(e) of
the Code.
(f) Neither the Company nor any Tax Affiliate has filed any
consent under Section 341(f) of the Code.
(g) The Company is, and at all times has been, taxable as a
corporation for United States income tax purposes.
-15-
<PAGE> 21
(h) For purposes of this Agreement, the term "Taxes" means
all taxes, charges, fees, levies, or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, social security, unemployment, excise, estimated, severance, stamp,
occupation, property, or other taxes, customs duties, fees, assessments, or
charges of any kind whatsoever, including, without limitation, all interest and
penalties thereon, and additions to tax or additional amounts imposed by any
taxing authority, domestic or foreign, upon the Company or any Tax Affiliate.
3.15 Contracts and Commitments.
(a) The Company Disclosure Schedule, under the caption
referencing this Section 3.15, lists the following agreements, whether oral or
written, to which the Company or its Predecessors is a party, which are
currently in effect, and which relate to the operation of the Company's
business: (i) collective bargaining agreement or contract with any labor
union; (ii) bonus, pension, profit sharing, retirement or other form of
deferred compensation plan, other than as described under the caption
referencing Section 3.19 hereof (or excluded by such Section from inclusion
thereunder) in the Company Disclosure Schedule; (iii) hospitalization insurance
or other welfare benefit plan or practice, whether formal or informal, other
than as described under the caption referencing Section 3.19 hereof in the
Company Disclosure Schedule (or excluded by such Section from inclusion
thereunder); (iv) stock purchase or stock option plan; (v) contract for the
employment of any person that will be binding on the Company after the
Effective Time or relating to severance pay for any person; (vi)
confidentiality agreement; (vii) contract, agreement or understanding relating
to the voting of Company Stock or the election of directors of the Company that
will be binding on the Company after the Effective Time; (viii)agreement or
indenture relating to the borrowing of money or to mortgaging, pledging or
otherwise placing a lien on any of the assets of the Company; (ix) guaranty of
any obligation for borrowed money or otherwise; (x) lease or agreement under
which it is lessee of, or holds or operates any personal property owned by any
other party, for which the annual rental exceeds $50,000; (xi) lease or
agreement under which it is lessor of, or permits any third party to hold or
operate, any property, real or personal, for which the annual rental exceeds
$50,000; (xii) contract or group of related contracts with the same party for
the purchase of products or services under which the undelivered balance of
such products or services is in excess of $50,000; (xiii) contract or group of
related contracts with the same party for the sale of products or services
under which the undelivered balance of such products or services has a sales
price in excess of $50,000; (xiv) contract or group of related contracts with
the same party (other than any contract or group of related contracts for the
purchase or sale of products or services) continuing over a period of more than
six months from the date or dates thereof, not terminable by it on 30 days' or
less notice without penalty and involving more than $100,000; (xv)
-16-
<PAGE> 22
contract which prohibits the Company or its Predecessors from freely engaging
in business anywhere in the world; (xvi) contract for the distribution of the
Company's products; (xvii) franchise agreement; (xviii) license agreement or
agreement providing for the payment or receipt of royalties or other
compensation by the Company or its Predecessors in connection with the
intellectual property rights listed under the caption referencing Section 3.16
hereof in the Company Disclosure Schedule; (xix) contract or commitment for
capital expenditures in excess of $50,000; (xx) agreement for the sale of any
capital asset; or (xxi) other agreement which is either material to the
Company's business or was not entered into in the ordinary course of business.
(b) To the Company's knowledge, the Company and its
Predecessors have performed in all material respects all obligations required
to be performed by it in connection with the contracts or commitments required
to be disclosed in the Company Disclosure Schedule under the caption
referencing this Section 3.15 and is not in receipt of any written claim of
default under any contract or commitment required to be disclosed under such
caption; the Company has no present expectation or intention of not fully
performing any material obligation pursuant to any contract or commitment
required to be disclosed under such caption; and the Company has no knowledge
of any breach or anticipated breach by any other party to any contract or
commitment required to be disclosed under such caption.
(c) Parent and Merger Subsidiary have been supplied with a
true and correct copy of each written contract or commitment, and a description
of each oral contract or commitment, referred to under the caption referencing
this Section 3.15 in the Company Disclosure Schedule, together with all
amendments, waivers or other changes thereto.
3.16 Intellectual Property Rights. The Company Disclosure Schedule
describes under the caption referencing this Section 3.16 all rights in
trademarks, service marks, trade names, corporate names, copyrights, trade
secrets, know-how or other intellectual property rights owned by, licensed to
or otherwise controlled by the Company or used in, developed for use in or
necessary to the conduct of the Company's business as now conducted or planned
to be conducted. The Company owns and possesses all right, title and interest,
or holds a valid license, in and to the rights set forth under such caption.
The Company Disclosure Schedule describes under the caption referencing this
Section 3.16 all intellectual property rights which have been licensed to third
parties and those intellectual property rights which are licensed from third
parties. The Company has taken all action reasonably necessary to protect the
intellectual property rights set forth under such caption. Neither the Company
nor its Predecessors have received any written notice of, nor are there any
facts known to the Company which indicate a likelihood of, any infringement or
misappropriation by, or conflict from, any third party with respect to the
intellectual property rights which are listed; no written claim by any third
party contesting the
-17-
<PAGE> 23
validity of any intellectual property rights listed in the Company Disclosure
Schedule has been made, is currently outstanding or, to the best knowledge of
the Company, is threatened; neither the Company nor its Predecessors have
received any written notice of any infringement, misappropriation or violation
by the Company or its Predecessors of any intellectual property rights of any
third parties and, to the Company's knowledge, the Company or its Predecessors
have not infringed, misappropriated or otherwise violated any such intellectual
property rights.
3.17 Litigation. Except as set forth in the Company Disclosure
Schedule under the caption referencing this Section 3.17, there are no actions,
suits, proceedings, orders or investigations pending or, to the best knowledge
of the Company, threatened against the Company or its Predecessors, at law or
in equity, or before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign. Neither the Company nor its Predecessors is a party to, subject to,
or, to the knowledge of the Company, threatened to be subject to, any order,
decree, agreement, memorandum of understanding or similar arrangement with, or
a commitment letter or similar submission to, any governmental authority,
except for those that would not have a material adverse effect on the Company.
3.18 Employees. Except as set forth on the Company Disclosure
Schedule under the caption referencing this Section 3.18, (a) to the best
knowledge of the Company, no executive employee of the Company and no group of
the Company's employees has any plans to terminate his or its employment; (b)
to the best knowledge of the Company, the Company and its Predecessors have
complied in all material respects with all laws relating to the employment of
labor, including provisions thereof relating to wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes; (c) to the best knowledge of the Company, the Company or its
Predecessors have no material labor relations problem pending and its labor
relations are satisfactory; (d) there are no workers' compensation claims
pending against the Company or its Predecessors nor, to the best knowledge of
the Company, is the Company aware of any facts that would give rise to such a
claim; (e) to the best knowledge of the Company, no employee of the Company is
subject to any secrecy or non-competition agreement or any other agreement or
restriction of any kind that would impede in any way the ability of such
employee to carry out fully all activities of such employee in furtherance of
the business of the Company; and (f) to the best knowledge of the Company, no
employee or former employee of the Company or its Predecessors has any claim
with respect to any intellectual property rights of the Company set forth under
the caption referencing Section 3.16 hereof in the Company Disclosure Schedule.
The Company Disclosure Schedule, under the caption referencing this Section
3.18, lists, as of the date set forth in the Company Disclosure Schedule, each
employee of the Company and the position, title, remuneration (including any
scheduled salary or
-18-
<PAGE> 24
remuneration increases), date of employment and accrued vacation pay of each
such employee.
3.19 Employee Benefit Plans.
(a) Except as set forth under the caption referencing Section
3.19 hereof in the Disclosure Schedule, with respect to all employees and
former employees of the Company, its Predecessors, all dependents and
beneficiaries of such employees and former employees, (i) the Company does not
maintain or contribute to any nonqualified deferred compensation or retirement
plans, contracts or arrangements; (ii) the Company does not maintain or
contribute to any qualified defined contribution plans (as defined in Section
3(34) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or Section 414(i) of the Code; (iii) the Company does not maintain
or contribute to any qualified defined benefit plans (as defined in Section
3(35) of ERISA or Section 414(j) of the Code); and (iv) the Company does not
maintain or contribute to any employee welfare benefit plans (as defined in
Section 3(1) of ERISA).
(b) To the extent required (either as a matter of law or to
obtain the intended tax treatment and tax benefits), all employee benefit plans
(as defined in Section 3(3) of ERISA) which the Company does maintain or to
which it does contribute (collectively, the "Plans") comply in all material
respects with the requirements of ERISA and the Code. With respect to the
Plans, (i) all required contributions which are due have been made and a proper
accrual has been made for all contributions due in the current fiscal year;
(ii) there are no actions, suits or claims pending, other than routine
uncontested claims for benefits; and (iii) to the knowledge of the Company,
there have been no prohibited transactions (as defined in Section 406 of ERISA
or Section 4975 of the Code).
(c) Parent and Merger Subsidiary have received true and
complete copies of (i) the most recent determination letter, if any, received
by the Company or its Predecessors from the Internal Revenue Service regarding
the Plans which the Company maintains or to which it contributes and any
amendment to any Plan made subsequent to any Plan amendments covered by any
such determination letter; (ii) the most recent financial statements and annual
report or return for the Plans; and (iii) the most recently prepared actuarial
valuation reports.
(d) The Company does not contribute (and the Company and its
Predecessors have not ever contributed) to any multi-employer plan, as defined
in Section 3(37) of ERISA. The Company has no actual or potential liabilities
under Section 4201 of ERISA for any complete or partial withdrawal from a
multi-employer plan. The Company has no actual or potential liability for
death or medical benefits after separation from employment, other than (i)
death benefits under the employee benefit plans or programs (whether or not
subject to ERISA) set
-19-
<PAGE> 25
forth under the caption referencing this Section 3.19 in the Company Disclosure
Schedule and (ii) health care continuation benefits described in Section 4980B
of the Code.
(e) Neither the Company nor any of its directors, officers or
employees has committed any breach of fiduciary responsibility imposed by ERISA
or any other applicable law with respect to the Plans which would subject the
Company, Parent, Merger Subsidiary, the Surviving Corporation, Parent's
subsidiaries or any of their respective directors, officers or employees to any
liability under ERISA or any applicable law.
(f) Neither the Company nor its Predecessors has incurred any
liability for any tax or civil penalty or any disqualification of any employee
benefit plan (as defined in Section 3(3) of ERISA) imposed by Sections 4980B
and 4975 of the Code and Part 6 of Title I and Section 502(i) of ERISA.
3.20 Insurance. The Disclosure Schedule, under the caption
referencing this Section 3.20, lists and briefly describes each insurance
policy maintained by the Company with respect to the Company's properties,
assets and operations and sets forth the date of expiration of each such
insurance policy. To the Company's knowledge, all of such insurance policies
are in full force and effect and are issued by insurers of recognized
responsibility. To the Company's knowledge, the Company is not in default with
respect to its obligations under any of such insurance policies.
3.21 Affiliate Transactions. Set forth under the caption
referencing Section 3.12 in the Company Disclosure Schedule are all leases
between the Company and affiliates of Trammell Crow Residential ("TCR"). There
are no other material agreements between the Company and affiliates of TCR.
3.22 Customers and Suppliers. The Disclosure Schedule, under the
caption referencing this Section 3.22, lists the 10 largest customers and the
10 largest suppliers of the Company for the fiscal year ended December 31, 1997
and for the two-month period ended February 28, 1998 and sets forth opposite
the name of each such customer or supplier the approximate percentage of net
sales or purchases by the Company attributable to such customer or supplier for
each such period. Since the Balance Sheet Date, no customer or supplier listed
on the Disclosure Schedule under the caption referencing this Section 3.22 has
indicated that it will stop or decrease the rate of business done with the
Company except for changes in the ordinary course of the Company's business.
-20-
<PAGE> 26
3.23 Compliance with Laws; Permits.
(a) To the knowledge of the Company, the Company and its
officers, directors, agents and employees have complied in all material
respects with all applicable laws, regulations and other requirements,
including, but not limited to, federal, state, local and foreign laws,
ordinances, rules, regulations and other requirements pertaining to equal
employment opportunity, employee retirement, affirmative action and other
hiring practices, occupational safety and health, workers' compensation,
unemployment and building and zoning codes, which materially affect the
business of the Company or the Real Property and to which the Company may be
subject, and no written claims have been filed against the Company alleging a
violation of any such laws, regulations or other requirements. The Company is
not relying on any exemption from or deferral of any such applicable law,
regulation or other requirement that, to the knowledge of the Company, would
not be available to Merger Subsidiary after it acquires the Company's
properties, assets and business.
(b) To the Company's knowledge, (i) the Company has, in full
force and effect, all licenses, permits and certificates, from federal, state,
local and foreign authorities (including, without limitation, federal and state
agencies regulating occupational health and safety) necessary to conduct its
business (collectively, the "Permits"), and (ii) the Company and its
Predecessors have conducted their business in compliance with all terms and
conditions of the Permits except to the extent that any failure to have such
necessary Permits or any instances of non-compliance with the terms and
conditions of the Permits, in the aggregate, would not have a material adverse
effect on the Surviving Corporation. For purposes of this Section 3.23(b),
"material" shall mean losses, liabilities, deficiencies, fines, penalties,
damages, expenses and costs that in the aggregate exceed $25,000.
(c) To the Company's knowledge, the Company has not made or
agreed to make gifts of money, other property or similar benefits (other than
incidental gifts of articles of nominal value) to any actual or potential
customer, supplier, governmental employee or any other person in a position to
assist or hinder the Company in connection with any actual or proposed
transaction.
(d) In particular, but without limiting the generality of the
foregoing, to the Company's knowledge, the Company has not violated and has no
liability, and has not received a written notice or charge asserting any
violation of or liability under, the federal Occupational Safety and Health Act
of 1970 or any other federal or state acts (including rules and regulations
thereunder) regulating or otherwise affecting employee health and safety.
3.24 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar
-21-
<PAGE> 27
compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Company, the Company Shareholders or Indemnifying Party other than the fees and
expenses of Drucilla Haskin, which fees and expenses will be paid by the
Company Shareholders.
3.25 Accredited Investors Status and Investment Intent. The
Company will obtain a representation from each recipient of Stock Consideration
(a "Recipient") that (i) each Recipient is an accredited investor, as defined
in Rule 501 of Regulation D, promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), (ii) each Recipient expressly agrees that it is
acquiring the Parent Common Stock for investment purposes.
3.26 Designation of Broker's License. To the Company's knowledge,
neither the Company nor any of its Predecessors has received notice that it has
violated any legal requirements to operate under a broker's license in any
jurisdiction where it conducts the Company's business. To the Company's
knowledge, Schedule 3.26 contains a list of all the states where the Company
currently has a broker's license and the name of the broker under whom the
Company conducts business in such state. The Company shall use commercially
reasonable efforts to cause the appropriate brokers under whose license the
Company operates in their respective states to designate Merger Subsidiary as
the corporate entity with which such broker shall be associated.
3.27 Transfer of Inventory, Equipment and Furniture. Except for
items used by the Company in Terminated Leases (as defined in Section 5.09),
the Company owns, and as a result of the Merger the Merger Subsidiary will own,
all of the housewares, equipment, machinery, vehicles, furniture, fixtures,
furnishings, office equipment, computer equipment, leasehold improvements and
all other tangible assets necessary for, and historically used by the Company
and its Predecessors in, the operation of the Company's business.
3.28 Disclosure. Neither this Agreement nor any of the Exhibits
hereto nor any of the documents delivered by or on behalf of the Company
pursuant to Article VII hereof nor the Company Disclosure Schedule nor any of
the financial statements referred to in Section 3.08 hereof, taken as a whole,
contains any untrue statement of a material fact regarding the Company or its
business or any of the other matters dealt with in this Article III relating to
the Company or the transactions contemplated by this Agreement. This
Agreement, the Exhibits hereto, the documents delivered to Parent and Merger
Subsidiary by or on behalf of the Company pursuant to Article VII hereof, the
Company Disclosure Schedule and the financial statements referred to in Section
3.08 hereof, taken as a whole, do not omit any material fact necessary to make
the statements contained herein or therein, in light of the circumstances in
which they were made, not misleading, and there is no
-22-
<PAGE> 28
fact which, to the knowledge of the Company, has not been disclosed to Parent
or Merger Subsidiary which materially affects adversely or could reasonably be
anticipated to materially affect adversely the business, including operating
results, assets, customer relations and employee relations, of the Company.
3.29 Tax Matters. Neither the Company nor, to its knowledge, any
of its affiliates, has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be taken
by Parent or Merger Subsidiary) would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368 of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUBSIDIARY
Except as set forth in the disclosure schedule delivered by Parent to
the Company on the date hereof (the "Parent Disclosure Schedule"), Parent and
Merger Subsidiary, jointly and severally, hereby represent and warrant to the
Company that:
4.01 Incorporation and Corporate Power. Each of Parent and Merger
Subsidiary is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Maryland, with the requisite corporate
power and authority to enter into this Agreement and the Articles of Merger and
perform its obligations hereunder and thereunder. Each of Parent and Merger
Subsidiary are qualified to do business as a foreign corporation in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be so qualified, except for those jurisdictions in which the
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on Parent's business or results of operations.
4.02 Execution, Delivery; Valid and Binding Agreement. The
execution, delivery and performance of this Agreement, by Parent and Merger
Subsidiary, and the Articles of Merger, by Merger Subsidiary, and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite corporate action, and no shareholder
vote of Parent or other corporate proceedings by Parent or Merger Subsidiary
are necessary to authorize the execution, delivery or performance of this
Agreement or the Articles of Merger. This Agreement has been duly executed and
delivered by Parent and Merger Subsidiary and constitutes the valid and binding
obligation of Parent and Merger Subsidiary, enforceable in accordance with its
terms, and the Articles of Merger, when executed and delivered by Merger
Subsidiary, will constitute the valid and binding obligation of Merger
Subsidiary, enforceable in accordance with its terms.
-23-
<PAGE> 29
4.03 No Breach. The execution, delivery and performance of this
Agreement and the Articles of Merger by Parent and Merger Subsidiary and the
consummation by Parent and Merger Subsidiary of the transactions contemplated
hereby and thereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration or any lien, security
interest, charge or encumbrance upon any assets of Parent or Merger Subsidiary,
or require any authorization, consent, approval, exemption or other action by
or notice to any court or other governmental body, under the provisions of the
Articles of Incorporation or Bylaws of either Parent or Merger Subsidiary or
any indenture, mortgage, lease, loan agreement or other agreement or instrument
by which either Parent or Merger Subsidiary is bound or affected, or any law,
statute, rule or regulation or order, judgment or decree to which either Parent
or Merger Subsidiary is subject.
4.04 Merger Subsidiary. Except as set forth in the Parent
Disclosure Schedule, all of the outstanding capital stock of Merger Subsidiary
is owned by Parent free and clear of any lien, claim or encumbrance or any
agreement with respect thereto. Since the date of its incorporation, Merger
Subsidiary has not engaged in any activity of any nature except in connection
with or as contemplated by this Agreement and the Articles of Merger.
4.05 Governmental Authorities; Consents. Except for the applicable
requirements of the HSR Act, and except for the filing of the Articles of
Merger with the Department of Assessments and Taxation of the State of
Maryland, neither Parent or Merger Subsidiary is required to submit any notice,
report or other filing with any governmental authority in connection with the
execution or delivery by it of this Agreement or the Articles of Merger or the
consummation of the transactions contemplated hereby or thereby. No consent,
approval or authorization of any governmental or regulatory authority or any
other party or person is required to be obtained by either Parent or Merger
Subsidiary in connection with its execution, delivery and performance of this
Agreement or the Articles of Merger or the transactions contemplated hereby or
thereby.
4.06 Brokerage. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Parent
or Merger Subsidiary other than the fees and expenses of A.G. Edwards & Sons,
Inc., which fees and expenses will be paid by Parent or Merger Subsidiary.
-24-
<PAGE> 30
4.07 SEC Reports.
(a) Since the time it became subject to the Securities and
Exchange Commission's ("SEC") filing requirements in August 1997, Parent has
filed all forms, reports and documents with the SEC required to be filed by it
pursuant to the federal securities laws and the SEC rules and regulations
thereunder, all of which have complied as of their respective filing dates, or
in the case of registration statements, their respective effective dates, in
all material respects with all applicable requirements of the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder (collectively, the "Parent SEC
Reports"). None of the Parent SEC Reports contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except for such statements, if any,
as have been modified by subsequent filings prior to the date hereof.
(b) The consolidated balance sheets and related consolidated
statements of income, stockholders' equity and cash flows (including the
related notes and schedules thereto) of Parent included in the Parent SEC
Reports complied as to form, at the time filed, in all material respect with
the published rules and regulations of the SEC with respect thereto at the time
filed, were prepared in accordance with GAAP applied on a consistent basis
during the periods involved and include all adjustments consisting of normal
recurring accruals necessary (in the case of unaudited interim financial
statements) are in accordance with the books and records of such company, which
books and records are complete and accurate in all material respect and present
fairly the consolidated financial position of Parent as of their respective
dates, and the consolidated income and cash flows for the periods presented
therein, all in conformity with GAAP applied on a consistent basis, except as
otherwise noted therein or as permitted under the Exchange Act. Since December
31, 1997, neither Parent nor any of its subsidiaries has incurred any
liabilities or obligations, whether absolute, accrued, fixed, contingent,
liquidated, unliquidated or otherwise and whether due or to become due, except
(i) as and to the extent set forth on the audited balance sheet of Parent as at
December 31, 1997, (ii) as incurred in connection with the transactions
contemplated by this Agreement, (iii) as incurred after December 31, 1997 in
the ordinary course of business and consistent with past practice, (iv) as
described in the Parent SEC Reports, including but not limited to acquisitions
described therein, or (v) as would not, individually or in the aggregate, have
a material adverse effect on Parent.
4.08 No Material Adverse Change. Except as disclosed in the Parent
SEC Reports as filed and amended before the date hereof, since December 31,
1997, there has been no material adverse change in the assets, financial
condition, operating
-25-
<PAGE> 31
results, customer, employee or supplier relations, business condition or
prospects of Parent and Merger Subsidiary.
4.09 Litigation. Except as set forth in the Parent Disclosure
Schedule under the caption referencing this Section 4.09, there are no actions,
suits, proceedings, orders or investigations pending or, to the best knowledge
of Parent and Merger Subsidiary, threatened against Parent or Merger
Subsidiary, at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Neither Parent nor Merger Subsidiary is
a party to, subject to, or threatened to be subject to, any order, decree,
agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any governmental authority, except
for those that would not have a material adverse effect on Parent and Merger
Subsidiary.
4.10 Parent Stock. As of the date hereof, the authorized Parent
Stock consists of 45,000,000 shares of common stock, par value $.01 per share,
7,028,955 of which shares were outstanding as of March 31, 1998. Subsequent to
March 31, 1998, (i) the board of directors of Parent authorized the issuance of
options to purchase up to 125,000 shares of Parent Stock to employees of Parent
and Merger Subsidiary and (ii) Parent issued approximately 94,700 shares of
Parent Stock in connection with the April 1998 acquisition of Southern
California Relocations, Inc. The Stock Consideration which will be issued upon
conversion of the Company Stock, when issued in accordance with the terms of
this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
4.11 Disclosure. Neither this Agreement nor any of the Exhibits
hereto nor any of the documents delivered by or on behalf of Parent or Merger
Subsidiary pursuant to Article VII hereof nor the Parent Disclosure Schedule
nor any of the financial statements referred to in Section 4.07 hereof, taken
as a whole, contains any untrue statement of a material fact regarding Parent
or Merger Subsidiary or their business or any of the other matters dealt with
in this Article IV relating to the Parent or Merger Subsidiary or the
transactions contemplated by this Agreement. This Agreement, the Exhibits
hereto, the documents delivered by Parent and Merger Subsidiary to the Company
pursuant to Article VII hereof, the Parent Disclosure Schedule and the
financial statements referred to in Section 4.07 hereof, taken as a whole, do
not omit any material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading,
and there is no fact which, to the knowledge of Parent or Merger Subsidiary,
has not been disclosed to the Company of which any officer or director of the
Parent or Merger Subsidiary is aware which materially affects adversely or
could reasonably be anticipated to materially affect adversely the business,
including operating results, assets, customer relations, employee relations and
business prospects, of Parent or Merger Subsidiary.
-26-
<PAGE> 32
4.12 Tax Matters. Neither Parent nor Merger Subsidiary has taken
or agreed to take any action, or knows of any circumstances, that (without
regard to any action taken or agreed to be taken by the Company or any of its
affiliates) would prevent the Merger from qualifying as a reorganization with
the meaning of Section 368 of the Code.
ARTICLE V
COVENANTS OF THE COMPANY
5.01 Conduct of the Business. Except as expressly permitted or
contemplated by this Agreement, the Company shall observe each term set forth
in this Section 5.01 and agrees that, from the date hereof until the Effective
Time, unless otherwise consented to by Parent or Merger Subsidiary in writing:
(a) The business of the Company shall be conducted only in,
and the Company shall not take any action except in, the ordinary course of the
Company's business, on an arm's-length basis and in accordance in all material
respects with all applicable laws, rules and regulations and the Company's past
custom and practice;
(b) The Company shall not, directly or indirectly, do or
permit to occur any of the following: (i) issue or sell any additional shares
of, or any options, warrants, conversion privileges or rights of any kind to
acquire any shares of, any of its capital stock, (ii) sell, pledge, dispose of
or encumber any of its assets, except in the ordinary course of business and
except as identified to Parent in writing; (iii) amend or propose to amend its
Articles of Incorporation or Bylaws; (iv) split, combine or reclassify any
outstanding shares of Company Stock, or declare, set aside or pay any dividend
or other distribution payable in cash, stock, property or otherwise with
respect to shares of Company Stock; (v) redeem, purchase or acquire or offer to
acquire any shares of Company Stock or other securities of the Company; (vi)
acquire (by merger, exchange, consolidation, acquisition of stock or assets or
otherwise) any corporation, partnership, joint venture or other business
organization or division or material assets thereof; (vii) incur any
indebtedness for borrowed money or issue any debt securities except the
borrowing of working capital in the ordinary course of business and consistent
with past practice; (viii) permit any accounts payable owed to trade creditors
to remain outstanding more than 60 days; (ix) accelerate, beyond the normal
collection cycle, collection of accounts receivable; or (x) enter into or
propose to enter into, or modify or propose to modify, any agreement,
arrangement or understanding with respect to any of the matters set forth in
this Section 5.01(b);
(c) The Company (i) shall not, directly or indirectly, enter
into or modify any employment, severance or similar agreements or arrangements
that
-27-
<PAGE> 33
will be binding on, or in any way adversely affect after the Effective Time,
Parent or Merger Subsidiary; or (ii) take any action with respect to the grant
of any bonuses, salary increases, severance or termination pay that will be
binding on, or in any way adversely affect after the Effective Time, Parent or
Merger Subsidiary or increase of benefits payable in effect on the date hereof
that will be binding on Parent or Merger Subsidiary; provided, however, that
prior to May 15, 1998, Merger Subsidiary shall provide in writing a list of
current Company employees who are to be terminated prior to Closing, and the
Company shall take appropriate steps to terminate such employees on or prior to
Closing and any severance payments or other costs associated with such
terminations shall be paid by the Company prior to the Closing Date, or if paid
by the Surviving Corporation shall be properly accrued on the Closing Date
Audited Balance Sheet to the extent so paid.
(d) The Company shall not adopt or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, trust, fund or group
arrangement for the benefit or welfare of any employees;
(e) The Company shall not cancel or terminate its current
insurance policies or cause any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse, replacement
policies providing coverage equal to or greater than the coverage under the
canceled, terminated or lapsed policies for substantially similar premiums are
in full force and effect;
(f) The Company shall (i) use its commercially reasonable
efforts to preserve intact the Company's business organization and goodwill,
keep available the services of the Company's officers and employees as a group
and maintain satisfactory relationships with suppliers, distributors, customers
and others having business relationships with the Company; (ii) confer on a
regular and frequent basis with representatives of Parent or Merger Subsidiary
to report operational matters and the general status of ongoing operations; and
(iii) not intentionally take any action which would render, or which reasonably
may be expected to render, any representation or warranty made by it in this
Agreement untrue at the Closing;
(g) The Company shall not (i) change any of its or its
Predecessors methods of accounting in effect at December 31, 1997, other than
those required by GAAP; (ii) make or rescind any express or deemed election
relating to Taxes, (iii) settle or compromise any claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes; or (iv) change any of its methods of reporting income or
deductions for federal income Tax purposes from those employed in the
preparation of the federal income Tax returns from the taxable year ending
December 31, 1997; and
-28-
<PAGE> 34
(h) The Company shall not take any action that (without
regard to any action taken or agreed to be taken by Parent or Merger
Subsidiary) would prevent the Merger from qualifying as a reorganization within
the meaning of Section 368 of the Code;
(i) The Company shall not perform any act referenced by
(or omit to perform any act which omission is referenced by) the terms of
Section 3.11.
5.02 Access to Books and Records. Between the date hereof and the
Closing Date, the Company shall afford Parent and Merger Subsidiary and
authorized representatives (the "Parent's Representatives") full access at all
reasonable times and upon reasonable notice to the offices, properties, books,
records, officers, employees and other items of the Company, and otherwise
provide such assistance as is reasonably requested by Parent and Merger
Subsidiary in order that Parent and Merger Subsidiary may have a full
opportunity to make such investigation and evaluation as it shall reasonably
desire to make of the business and affairs of the Company. In addition, the
Company and its officers and directors shall cooperate fully (including
providing introductions, where necessary) with Parent and Merger Subsidiary to
enable Parent and Merger Subsidiary to contact such third parties, including
customers, prospective customers, specifying agencies, vendors, or suppliers of
the Company as Parent deems reasonably necessary to complete its due diligence;
provided that, Parent and Merger Subsidiary agree not to initiate such
contacts without the prior approval of the Company, which approval will not be
unreasonably withheld; provided, further, that a representative of the Company
may, at the Company's option, participate in such contacts. Each of Parent and
Merger Subsidiary will hold, and will use commercially reasonable efforts to
cause its officers, employees, accountants, counsel, financial advisors and all
other representatives and affiliates to hold, any nonpublic information in
confidence to the extent required by, and in accordance with, and will comply
with the provisions of the letter agreement, dated March 6, 1998 between Parent
and the Company (the "Confidentiality Agreement").
5.03 Company Shareholder Approval. The Company has taken all
action necessary in accordance with the TBCA and its Articles of Incorporation
and Bylaws to obtain any necessary approval of the Plan of Merger from the
Company Shareholders.
5.04 Regulatory Filings; Good Faith Cooperation. The Company
shall, as promptly as practicable after the execution of this Agreement, make
or cause to be made all filings and submissions under the HSR Act and any other
laws or regulations applicable to the Company for the consummation of the
transactions contemplated herein. The Company will coordinate and cooperate
with Parent and Merger Subsidiary in exchanging such information, will not make
any such filing without providing to Parent and Merger Subsidiary a final copy
thereof for their
-29-
<PAGE> 35
review and consent at least two full business days in advance of the proposed
filing and will provide such reasonable assistance as Parent and Merger
Subsidiary may request in connection with all of the foregoing. The Company
shall use commercially reasonable efforts to take, or cause to be taken, all
other actions and do, or cause to be done, all other things reasonably
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the proper officers and directors and other duly
authorized representatives of the Company shall take all such necessary action.
5.05 Preparation of Tax Returns. The Company shall file (or the
Representative of the Company Shareholders on their behalf) at its own expense,
on or prior to the due date thereof, all Tax returns required to be filed for
all Tax periods ending on or before the Closing Date; provided, however, that
the Company shall not file any such Tax returns, or other returns, elections,
claims for refund or information statements with respect to any liabilities for
Taxes (other than federal state or local sales, use, property, withholding or
employment tax returns or statements) for any Tax period without providing
Merger Subsidiary with final copies of each such Tax return or election of the
Company (including returns of all employee benefit Plans) at least ten days
before filing such return or election and shall reasonably cooperate with any
request by the Merger Subsidiary in connection therewith.
5.06 Conditions. The Company and Indemnifying Party shall act in
good faith and take all commercially reasonable actions necessary or desirable
to cause the conditions set forth in Section 7.01 to be satisfied and to
consummate the transactions contemplated herein as soon as reasonably possible
after the satisfaction thereof (but in any event within three business days of
such date).
5.07 No Negotiations. Neither the Company nor Indemnifying Party
or any of their respective subsidiaries shall enter into any negotiations or
agreement, or make any undertaking or commitment, with respect to the Company
(i) to merge or consolidate with, or acquire substantially all of the property
and assets of, any other corporation or person, (ii) to sell, lease or exchange
all or substantially all of their respective properties and assets to any other
corporation or person or (iii) otherwise to cause the ownership or control of
the Company or any of its subsidiaries to be transferred to any party other
than Parent and Merger Subsidiary. The Company shall cause all affiliates and
representatives of the Company to comply with this Section 5.07.
5.08 Audited Financial Statements. The Company will ensure that
the Audited Financial Statements, as defined in Section 3.08 above, will be
prepared in accordance with GAAP, consistently applied throughout their
respective periods,
-30-
<PAGE> 36
and are delivered to Merger Subsidiary and Parent within forty-five (45) days
of the Closing Date.
5.09 Terminated Leases. At least 20 days prior to Closing, Merger
Subsidiary shall identify, and notify the Company of, the Office Leases that
Merger Subsidiary desires to have terminated (the "Terminated Leases"). Before
Closing, the Company shall use commercially reasonable efforts to obtain
appropriate waivers and termination agreements with respect to those Terminated
Leases in which the lessor is unaffiliated with the Company or TCR, and shall
present such waivers and termination agreements to Merger Subsidiary. Before
Closing, the Company shall obtain appropriate waivers and termination
agreements with respect to those Terminated Leases in which the landlord is
affiliated with the Company or TCR, and with respect to such Terminated Leases
the Company shall cooperate with such landlord and Merger Subsidiary to reach
Transitionary Agreements described in Section 9.04 hereof. After the Effective
Time, the Company shall have no further obligations or duties with respect to
the Terminated Leases after the Effective Time and Indemnifying Party shall
indemnify Parent and Merger Subsidiary for any costs, liabilities, lease
payments, obligations and expenses relating to the Terminated Leases incurred
after the Effective Time.
5.10 Notice of Certain Matters. The Company shall promptly notify
Parent and Merger Subsidiary (i) of any material governmental or administrative
complaints, investigations or hearings (or communications indicating that the
same may be contemplated); (ii) if the Company shall discover that any
representation or warranty made by it in this Agreement was when made, or has
subsequently become, untrue in any respect; (iii) of any notice or other
communication from any third party relating to, a material default or event
which, with notice or lapse of time or both, would become a material default,
received by the Company subsequent to the date of this Agreement and prior to
the Effective Time, under any material agreement, indenture or instrument to
which the Company is a party or is subject, (iv) any notice or other
communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement and (v) any material adverse change of the Company as an
entirety or the occurrence of an event which, so far as reasonably can be
foreseen at the time of its occurrence, would result in any such material
adverse change.
-31-
<PAGE> 37
ARTICLE VI
COVENANTS OF PARENT AND MERGER SUBSIDIARY
Parent and Merger Subsidiary covenant and agree with the Company as
follows:
6.01 Regulatory Filings; Good Faith Cooperation. Parent or Merger
Subsidiary shall, as promptly as practicable after the execution of the
Agreement, make or cause to be made all filings and submissions under the HSR
Act and any other laws or regulations applicable to Parent and Merger
Subsidiary for the consummation of the transactions contemplated herein.
Parent and Merger Subsidiary will coordinate and cooperate with the Company in
exchanging such information, will not make any such filing without providing to
the Company a final copy thereof for its review and consent at least two full
business days in advance of the proposed filing and will provide such
reasonable assistance as the Company may request in connection with all of the
foregoing. Each of Parent and Merger Subsidiary shall use commercially
reasonable efforts to take, or cause to be taken, all other actions and do, or
cause to be done, all other things reasonably necessary, proper or appropriate
to consummate and make effective the transactions contemplated by this
Agreement. If, at any time after the Effective Time, any further action is
necessary or desirable to carry out the purpose of this Agreement, the proper
officers and directors and other duly authorized representatives of Parent and
Merger Subsidiary shall take all such necessary action.
6.02 Conditions. Parent or Merger Subsidiary shall act in good
faith and take all commercially reasonable actions necessary or desirable to
cause the conditions set forth in Section 7.02 to be satisfied and to
consummate the transactions contemplated herein as soon as reasonably possible
after the satisfaction thereof (but in any event within three business days of
such date).
6.03 Notice of Certain Matters. Parent and Merger Subsidiary shall
promptly notify the Company (i) of any material governmental or administrative
complaints, investigations or hearings (or communications indicating that the
same may be contemplated) which may affect Parent's or Merger Subsidiary's
ability to effect the Merger; (ii) if Parent or Merger Subsidiary shall
discover that any representation or warranty made by them in this Agreement was
when made, or has subsequently become, untrue in any respect; (iii) of any
notice or other communication from any third party relating to, a material
default or event which, with notice or lapse of time or both, would become a
material default, received by Parent or Merger Subsidiary subsequent to the
date of this Agreement and prior to the Effective Time, under any material
agreement, indenture or instrument to which Parent and Merger Subsidiary is a
party or is subject, (iv) any notice or other communication from any third
party alleging that the consent of such third party is
-32-
<PAGE> 38
or may be required in connection with the transactions contemplated by this
Agreement and (v) any material adverse change of Parent and Merger Subsidiary
as an entirety or the occurrence of an event which, so far as reasonably can be
foreseen at the time of its occurrence, would result in any such material
adverse change.
6.04 Continued Employment of Gary Abrahams. From the date of this
Agreement through and including the Closing Date, the Parent shall continue to
employ Gary Abrahams, and Mr. Abrahams shall continue to serve, as the Chief
Executive Officer of the Parent and the Merger Subsidiary, unless Mr. Abrahams'
failure to serve in such capacity results from his death or disability.
6.05 No Issuances of Stock at Prices Below the Parent Stock Merger
Price. From the date of this Agreement through and including the Closing Date,
the Parent shall not issue additional shares of its common stock at prices
below the Parent Stock Merger Price except for (i) issuances of shares, or
rights or options to purchase shares, to the employees of Parent and Merger
Subsidiary, (ii) those share issuances identified in the Parent Disclosure
Schedule, and (iii) issuances in the aggregate not to exceed 500,000 shares of
Parent common stock, excluding any issuances referred to in clauses (i) and
(ii).
6.06 Appointment of Paul Reeve to Parent Board. At the next
meeting of the Board of Directors of the Parent following the Closing Date, the
Parent shall cause the Board of Directors to appoint Paul Reeve as a member of
the Board of Directors of the Parent.
6.07 Access to Books and Records. Between the date of this
Agreement and the Closing Date, the Parent and Merger Subsidiary shall afford
the Company and its authorized representatives (the "Company's
Representatives") access at all reasonable times and upon reasonable notice to
the offices, properties, books, records, officers, employees and other items of
the Parent and Merger Subsidiary, which access shall be consistent with due
diligence procedures customarily performed by target companies in connection
with their due diligence of a public company acquiror. Each of Parent and
Merger Subsidiary will hold, and will use commercially reasonable efforts to
cause its officers, employees, accountants, counsel, financial advisors and all
other representatives and affiliates to hold, any nonpublic information in
confidence to the extent required by, and in accordance with, and will comply
with the provisions of the Confidentiality Agreement.
6.08 Conduct of Business. The business of Parent and Merger
Subsidiary shall be conducted only in, and neither Parent nor Merger Subsidiary
shall take any action except in, the ordinary course of their respective
businesses, on an arm's-length basis and in accordance in all material respects
with all applicable laws, rules and regulations and the past custom and
practice of Parent and Merger Subsidiary.
-33-
<PAGE> 39
6.09 Tax Treatment Compliance. Unless otherwise expressly
contemplated by this Agreement or consented to in writing by the Company,
neither Parent nor Merger Subsidiary shall take any action that (without regard
to any action taken or agreed to be taken by the Company) would prevent the
Merger from qualifying as a reorganization within the meaning of Section 368 of
the Code.
ARTICLE VII
CONDITIONS TO CLOSING
7.01 Conditions to Parent's and Merger Subsidiary's Obligations.
The obligation of Parent and Merger Subsidiary to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of the following
conditions at or before the Effective Time, any of which may be waived, in
whole or in part, to the extent permitted by applicable law:
(a) The representations and warranties set forth in Article
III hereof shall be true and correct in all material respects at and as of the
Effective Time as though then made on and as of such date;
(b) The Company and Indemnifying Party shall have performed in
all material respects all of the covenants and agreements required to be
performed and complied with by them under this Agreement prior to the Effective
Time;
(c) The Company shall have obtained, or caused to be
obtained, each consent and approval necessary on the part of the Company to the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and to permit the continued operation of the
business of the Company without a material adverse change with respect to the
Company;
(d) This Agreement, the Articles of Merger and the Merger
shall have been duly and validly authorized by the Board of Directors of the
Company, and with respect only to the Agreement, by the Board of Directors of
Indemnifying Party, if required by applicable law or the charter documents
thereof; and the Company and Indemnifying Party shall have delivered to Parent
and the Merger Subsidiary evidence, in form satisfactory to Parent's and Merger
Subsidiary's counsel, of such authorization and approval, and the Articles of
Merger shall have been duly executed by the Company;
(e) The applicable waiting periods under the HSR Act shall
have expired or been terminated, and all other material governmental filings,
authorizations and approvals that are required for the consummation of the
transactions contemplated by this Agreement or the Articles of Merger will have
been duly made and obtained;
-34-
<PAGE> 40
(f) No temporary restraining order, preliminary or permanent
injunction or other order or decree of any court of competent jurisdiction or
governmental authority or agency, domestic or foreign shall have been issued
and remain in effect, (i) challenging or seeking to make illegal, or to delay
or otherwise directly or indirectly restrain or prohibit, the consummation of
the transactions contemplated hereby or seeking to obtain material damages in
connection with such transactions, (ii) seeking to prohibit direct or indirect
ownership or operation by Parent or Merger Subsidiary of all or a material
portion of the business or assets of the Company and its subsidiaries, or to
Parent or Merger Subsidiary or any of their subsidiaries or the Company to
dispose of or to hold separately all or a material portion of the business or
assets of Parent or Merger Subsidiary and their subsidiaries or of the Company,
as a result of the transactions contemplated hereby, (iii) seeking to require
direct or indirect transfer or sale by Parent or Merger Subsidiary of any of
the shares of Company Stock, (iv) seeking to invalidate or render unenforceable
any material provision of this Agreement or the Articles of Merger or any of
the other agreements attached as exhibits hereto (collectively, the "Related
Agreements"), or (v) otherwise relating to and materially adversely affecting
the transactions contemplated hereby;
(g) There shall not be any action taken, or any statute,
rule, regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated
hereby by any federal, state or foreign court, government or governmental
authority or agency, which would reasonably be expected to result, directly or
indirectly, in any of the consequences referred to in Section 7.01(f) hereof;
(h) Prior to May 15, 1998 (the "Due Diligence Date") Parent or
Merger Subsidiary shall not have discovered any fact or circumstance existing
as of the date of this Agreement which has not been disclosed to Parent and
Merger Subsidiary as of the date of this Agreement regarding the business,
assets, properties, condition (financial or otherwise), results of operations
or prospects of the Company which is, individually or in the aggregate with
other such facts and circumstances, materially adverse to the Company or to the
value of the shares of Company Stock;
(j) Parent shall have received from counsel for the Company
and Indemnifying Party a written opinion, dated the date of the Effective Time,
addressed to Parent and Merger Subsidiary, and satisfactory to their counsel,
in form and substance substantially as set forth in Exhibit G;
(k) Prior to the Effective Time, the Company and Indemnifying
Party shall have delivered or made available, as applicable, to Parent all of
the following:
-35-
<PAGE> 41
(i) certificates of two executive officers of the
Company dated as of the date of the Effective Time, stating
that the conditions precedent set forth in subsections (a) and
(b) above have been satisfied;
(ii) copies of the third party and governmental
consents and approvals and of the authorizations referred to
in subsections (c), (d) and (e) above;
(iii) the Company's minute books, stock transfer
records, corporate seal and other materials related to the
Company's corporate administration;
(iv) resignations (effective as of the Effective
Time) from such of the Company's officers as Parent shall have
requested at least [10] days prior to the Effective Time;
(v) a copy of the Articles of Incorporation of the
Company, certified by the Secretary of State of the State of
Texas, and Certificates of Good Standing from the Secretary of
State of the State of Texas evidencing the good standing of
the Company in such jurisdiction;
(vi) a copy of each of (A) the text of the
resolutions adopted by the board of directors of the Company
authorizing the execution, delivery and performance of this
Agreement and the Articles of Merger and the consummation of
all of the transactions contemplated by this Agreement and the
Articles of Merger, (B) the bylaws of the Company; and (C) the
text of the resolutions adopted by the board of directors of
Indemnifying Party authorizing the execution, delivery and
performance of this Agreement and the Articles of Merger and
the consummation of all of the transactions contemplated by
this Agreement, if required by applicable law or the charter
documents thereof; along with certificates executed on behalf
of the Company and Indemnifying Party by their respective
corporate secretaries certifying to Parent that their
respective copies are true, correct and complete copies of
such resolutions and bylaws, respectively, and that such
resolutions and bylaws were duly adopted and have not been
amended or rescinded;
(vii) incumbency certificates executed on behalf of
the Company and Indemnifying Party by their corporate
secretaries certifying the signature and office of each
officer executing this Agreement, the Articles of Merger and
the Related Agreements executed by the Company and/or
Indemnifying Party;
-36-
<PAGE> 42
(viii) the Latest Balance Sheet and the Latest
Financial Statements;
(ix) certificates representing all of the Company's
issued and outstanding stock, properly endorsed and otherwise
in proper form for transfer;
(x) waivers and termination agreements, in form
acceptable to Merger Subsidiary, for the Terminated Leases
obtained by the Company pursuant to Section 5.09 hereof;
(xi) certificates of designation of broker licenses,
in form acceptable to Merger Subsidiary, obtained by the
Company pursuant to Section 3.29 hereof;
(xii) certificates of two executive officers of
Indemnifying Party, dated as of the Closing Date, stating that
the net worth of the Indemnifying Party as of the Closing
Date, as calculated based on an unaudited balance sheet not
prepared in accordance with GAAP, is at least $1,956,500; and
(viii) such other certificates, documents and
instruments as Parent reasonably requests related to the
transactions contemplated hereby.
(l) Prior to the Due Diligence Date, Parent shall have
received from A.G. Edwards & Sons, Inc. a written opinion, as to the fairness
of the Merger to the Company Shareholders from a financial point of view (the
"Fairness Opinion");
(m) Parent shall be reasonably satisfied that the Company
will be able to deliver the Audited Financial Statements of the Company within
forty-five (45) days of Closing;
(n) Parent or Merger Subsidiary, as the case may be, shall
have received from the appropriate parties the agreements set forth in Article
IX hereof at the time and in the manner set for in such Article IX; and
(o) As of the Closing Date, Merger Subsidiary shall be
satisfied that (i)at least seventy five percent (75%) of those Company
employees listed on Exhibit H will continue their employment with Merger
Subsidiary after the Merger (either pursuant to an employment agreement or
otherwise; provided that if any such employee signs an employment agreement
with Merger Subsidiary, this condition shall be deemed to be met with respect
to such employee) and (ii) at least seventy-five percent (75%) of those Company
employees listed on Exhibit H have
-37-
<PAGE> 43
executed and delivered to Merger Subsidiary non-compete agreements that have a
term of one year following termination of employment with the Surviving
Corporation.
7.02 Conditions to the Company's and Indemnifying Party's
Obligations. The obligations of the Company and Indemnifying Party to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions at or before the Effective Time, any
of which may be waived, in whole or in part, to the extent permitted by
applicable law:
(a) The representations and warranties set forth in Article
IV hereof will be true and correct in all material respects at and as of the
Effective Time as though then made;
(b) Parent and Merger Subsidiary shall have performed in all
material respects all the covenants and agreements required to be performed by
them under this Agreement and the Articles of Merger prior to the Effective
Time, and Merger Subsidiary shall have executed the Articles of Merger;
(c) The applicable waiting periods under the HSR Act shall
have expired or been terminated and all other material governmental filings,
authorizations and approvals that are required for the consummation of the
transactions contemplated hereby will have been duly made and obtained;
(d) There shall not be threatened, instituted or pending any
action or proceeding, before any court or governmental authority or agency,
domestic or foreign, (i)challenging or seeking to make illegal, or to delay or
otherwise directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated by this Agreement or the Articles of Merger or
seeking to obtain material damages in connection with such transactions, (ii)
seeking to invalidate or render unenforceable any material provision of this
Agreement, the Articles of Merger or any of the Related Agreements, or (iii)
otherwise relating to and materially adversely affecting the transactions
contemplated hereby or thereby;
(e) There shall not be any action taken, or any statute,
rule, regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated by
this Agreement or the Articles of Merger by any federal, state or foreign
court, government or governmental authority or agency, which would reasonably
be expected to result, directly or indirectly, in any of the consequences
referred to in Section 7.02(d) hereof;
(f) The Company and Indemnifying Party shall have received
from counsel for Parent and Merger Subsidiary a written opinion, dated as of
the date of the Effective Time, addressed to the Company and Indemnifying Party
and
-38-
<PAGE> 44
satisfactory to the Company's counsel, in form and substance substantially as
set forth in Exhibit I; and
(g) At or prior to the Effective Time, Parent and Merger
Subsidiary will have delivered to the Company and Indemnifying Party (i) a
certificate of the Chief Executive Officer of Parent and Merger Subsidiary,
dated as of the date of the Effective Time, stating that the conditions
precedent set forth in subsections (a) and (b) above have been satisfied, (ii)
a copy of each of (A) the text of the resolutions adopted by the board of
directors of Parent and Merger Subsidiary authorizing the execution, delivery
and performance of this Agreement and the Articles of Merger and the
consummation of all of the transactions contemplated by this Agreement and the
Articles of Merger and (B) the bylaws of Parent and the Merger Subsidiary,
along with certificates executed on behalf of each of Parent and Merger
Subsidiary by their respective corporate secretaries certifying to the Company
and Indemnifying Party that such copies are true, correct and complete copies
of such resolutions and bylaws, respectively, and that such resolutions and
bylaws were duly adopted and have not been amended or rescinded, (iii)
incumbency certificates executed on behalf of each of Parent and Merger
Subsidiary by their corporate secretaries certifying the signature and office
of each officer executing this Agreement, the Articles of Merger and of the
Related Agreements as to which such corporation is a party, (iv) an executed
copy of each of the Related Agreements; and (v) the Merger Consideration as set
forth in Section 2.04(a) of this Agreement.
(h) The Company, Indemnifying Party or the Company
Shareholders, as the case may be, shall have received from the appropriate
parties the agreements set forth in Article IX hereof at the time and in the
manner set forth in such Article IX.
(i) The Company shall have received an opinion from legal
counsel to the Company, based upon certificates and letters, to the effect that
the Merger will qualify as a reorganization under the provisions of Section
368(a) of the Code.
(j) The Nasdaq Stock Market shall have approved for listing
on its National Market System the shares of Parent Common Stock to be issued in
the Merger, subject to official notice of issuance.
ARTICLE VIII
TERMINATION
8.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
-39-
<PAGE> 45
(a) by the mutual consent of Parent, Merger Subsidiary, the
Company and Indemnifying Party;
(b) by either Parent or Merger Subsidiary, on the one hand,
or the Company and Indemnifying Party, on the other, if there has been a
material misrepresentation, breach of warranty or breach of covenant on the
part of the other in the representations, warranties and covenants set forth in
this Agreement that has not been cured within 10 business days following
receipt by the breaching party of notice of such breach;
(c) by either Parent or Merger Subsidiary, on the one hand,
or the Company and Indemnifying Party on the other, if the transactions
contemplated by this Agreement or the Articles of Merger have not been
consummated by June 30, 1998; provided that, neither will be entitled to
terminate this Agreement pursuant to this Section 8.01(c) if such party's
willful breach of this Agreement has prevented the consummation of the
transactions contemplated by this Agreement or the Articles of Merger;
(d) by Parent or Merger Subsidiary if, after the date hereof,
there shall have been a material adverse change in the financial condition or
business of the Company or if an event shall have occurred which, so far as
reasonably can be foreseen, would result in any such change, except to the
extent such change is directly caused by Parent or Merger Subsidiary;
(e) by the Company if, after the date hereof, there shall
have been a material adverse change in the financial condition or business of
the Parent or if an event shall have occurred which, so far as reasonably can
be foreseen, would result in any such change, except to the extent such change
is directly caused by the Company; or
(f) by either Parent or Merger Subsidiary, on the one hand,
or the Company and Indemnifying Party on the other, in the event that the
governmental authorities under the HSR Act shall have denied by final
nonappealable action the approval of the Merger.
8.02 Effect of Termination. In the event of termination of this
Agreement by either Parent or Merger Subsidiary, on the one hand, or the
Company and Indemnifying Party on the other, as provided in Section 8.01, or if
the Closing does not occur on or before June 30, 1998, all provisions of this
Agreement shall terminate and there shall be no liability on the part of any of
Parent, Merger Subsidiary, the Company or Indemnifying Party or their
respective shareholders, officers, or directors, except that (i) Sections 8.02,
11.01, 11.02 and 11.09 hereof shall survive indefinitely, and (ii) parties
shall remain liable for willful material breaches of this Agreement prior to
the time of such termination.
-40-
<PAGE> 46
8.03 Prompt Notice. In the event of termination of this Agreement
by any party as provided in Section 8.01, prompt written notice shall be given
to the other parties thereto.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.01 Registration Rights and Lock-up Agreements. Parent and each
of the Recipients agree to enter into and deliver at Closing an Investor,
Lock-up and Registration Rights Agreement, substantially in the form attached
hereto as Exhibit J (the "Investor, Lock-up and Registration Rights
Agreement"), and pursuant to which (i) Parent will give to the Recipients
piggyback registration rights (subject to customary underwriter cutbacks) and a
one-time demand registration right for the sale of the Parent Common Stock
received pursuant to this Agreement, (ii) Recipients agree not to sell any of
the Parent Common Stock received pursuant to this Agreement prior to April 1,
1999 and (iii) Recipients agree to waive all rights to any claim against the
Company relating to such Recipient's equity ownership percentage in the
Company. The Company shall use commercially reasonable efforts to cause all
Company Shareholders who are not Recipients to enter into and deliver at
Closing a waiver of all rights against the Company relating to such person's
equity ownership percentage in the Company. Company Shareholders understand
and agree that the registration of the Parent Common Stock pursuant to the
exercise of their demand registration right may also include Parent Common
Stock held by one or more other existing or future shareholders of Parent.
9.02 Employment Agreement and Directorship Arrangements. Paul
Reeve and Merger Subsidiary agree to enter into and deliver on Closing a
two-year employment agreement in the form attached hereto as Exhibit K. Prior
to the Effective Date, the Board of Directors of the Company shall be increased
by one effective as of the Effective Time and at the next meeting of the Board
of Directors of the Parent following the Closing Date shall appoint Paul Reeve
(or such other person designated by the Company in the event Mr. Reeve is
unable or unwilling to serve) to fill such vacancy. In addition, Ronald
Terwilliger will be offered a position as advisor to the Parent's Board of
Directors and will receive options for the purchase of Parent Common Stock
commensurate with other Board members.
9.03 Non-Competition Agreements. Paul Reeve, Ronald Terwilliger,
and the Indemnifying Party agree to enter into five-year non-competition
agreements, in the form attached hereto as Exhibit L, with Merger Subsidiary
and Parent on or before the Closing (the "Non-Competition Agreements"). The
parties to this Agreement expressly agree that the Non-Competition Agreement is
a material inducement to Parent and Merger Subsidiary to enter into this
Agreement.
-41-
<PAGE> 47
9.04 Transitionary Agreements. At a reasonable time prior to
Closing, Merger Subsidiary and certain TCR affiliated entities shall have
agreed to mutually satisfactory arrangements for the use of the Terminated
Leases at rates equal to the Company's actual costs during a reasonable
transition period following Closing (the "Transitionary Agreements").
9.05 Customer Referral Agreements. On or before the Closing,
Merger Subsidiary and Indemnifying Party shall enter into a customer referral
agreement (the "Customer Referral Agreement"), substantially in the form
attached hereto as Exhibit M, providing Merger Subsidiary with exclusivity with
respect to referrals of potential interim housing customers from current and
future TCR owned and managed properties. Merger Subsidiary acknowledges that
such efforts are subject to legal, financial and other constraints of joint
venture partners, lenders and third-party owners. The Customer Referral
Agreement shall provide that TCR and its affiliates will use commercially
reasonable efforts (which shall not include any obligation to pay money or make
comparable economic concessions) to obtain such referrals.
9.06 Escrow Agreement. On or before Closing, the parties set forth
in Section 2.03 hereof shall enter into the Escrow Agreement.
ARTICLE X
SURVIVAL; INDEMNIFICATION
10.01 Survival of Representations and Warranties. Notwithstanding
any investigation made by or on behalf of any of the parties hereto or the
results of any such investigation and notwithstanding the participation of such
party in the Closing, the representations and warranties contained in Article
III and Article IV hereof shall survive the Effective Time for a period of
eighteen months (18) following the Effective Time.
10.02 Indemnification by the Company and Indemnifying Party.
(a) Subject to the limitations of Section 10.02(b), the
Company and Indemnifying Party, prior to the Effective Time, jointly and
severally agree, and Indemnifying Party, after the Effective Time, agree, to
indemnify in full Parent and Merger Subsidiary and their respective officers,
directors, employees, agents and shareholders (collectively, the "Parent
Indemnified Parties") and hold them harmless against any loss, liability,
deficiency, damage, expense or cost (including reasonable legal expenses),
whether or not actually incurred or paid (collectively, "Losses"), which Parent
Indemnified Parties may suffer, sustain or become subject
-42-
<PAGE> 48
to, prior to eighteen months from the Effective Time, as a result of (i) any
misrepresentation in any of the representations and warranties of the Company
and/or Indemnifying Party contained in this Agreement or in any exhibits,
schedules, certificates or other documents delivered or to be delivered by or
on behalf of the Company or Indemnifying Party pursuant to the terms of this
Agreement or otherwise referenced or incorporated in this Agreement
(collectively, the "Related Documents"), (ii) any breach of, or failure to
perform, any agreement of the Company, the Company Shareholders or Indemnifying
Party contained in this Agreement or any of the Related Documents other than
such breach or failure to perform as shall be waived in writing by Parent or
Merger Subsidiary on or prior to the Effective Time, (iii) any "Claims" (as
defined in Section 10.04(a) hereof) or threatened Claims against Parent or the
Merger Subsidiary arising out of the actions or inactions of the Company, the
Company Shareholders or Indemnifying Party with respect to the Company's
business prior to the Effective Time (collectively, "Parent Losses"), (iv) any
unknown liabilities of the Company incurred prior to the Closing Date as if
they were known but undisclosed liabilities of the Company under Section 3.09
of this Agreement, (v) any liabilities, losses, severance pay or other amounts
relating to any period after the Effective Time payable to those employees of
the Company who are terminated on or before the Closing Date or as a result of
the Merger incurred prior to the Closing Date, (vi) any costs and expenses,
including attorney costs, incurred by Parent or Merger Subsidiary in connection
with any proceedings involving Company Shareholders who purport to exercise
dissenters' rights under the TBCA in connection with the Merger, plus any
amounts determined to be due to such Company Shareholders in exchange of their
Company Stock which amount exceeds (on a per share basis) the Merger
Consideration divided by the number of shares of Company Stock outstanding as
of the Closing Date, and (vi) any amounts due to Parent or Merger Subsidiary
pursuant to Sections 2.02(a) or (b) of this Agreement which exceed the Escrowed
Consideration remaining in the Escrow Account.
(b) The Company and Indemnifying Party will be liable to
the Parent Indemnified Parties for any Parent Losses only if Parent or Merger
Subsidiary delivers to the Company and Indemnifying Party written notice within
18 months of the Effective Time, setting forth in reasonable detail the
identity, nature and amount of Parent Losses related to such claim or claims
prior to eighteen months from the Effective Time. Parent or Merger
Subsidiary's failure to provide the detail required by the preceding sentence
shall not relieve the Company or Indemnifying Party from any liability that
they may have to Parent or Merger Subsidiary under Section 10.02(a), except to
the extent that the Company or Indemnifying Party demonstrates that such
failure prejudiced the Company or Indemnifying Party with respect to the
defense of such claim.
-43-
<PAGE> 49
10.03 Indemnification by Parent and Merger Subsidiary.
(a) Subject to the limitations of Section 10.03(b),
Parent and Merger Subsidiary agree to indemnify in full the Company and
Indemnifying Party and the Company's officers, directors, employees, agents and
stockholders (collectively, the "Company Indemnified Parties") and hold them
harmless against any Losses which any of the Company Indemnified Parties may
suffer, sustain or become subject to, prior to eighteen months from the
Effective Time, as a result of (i) any misrepresentation in any of the
representations and warranties of Parent and Merger Subsidiary contained in
this Agreement or in any of the Related Documents, (ii) any breach of, or
failure to perform, any agreement of Parent or Merger Subsidiary contained in
this Agreement or any of the Related Documents, (iii) any Claims or threatened
Claims against the Company or Indemnifying Party arising out of the actions or
inactions of Parent or Merger Subsidiary with respect to the Company's
business or the Real Property after the Effective Time or (iv) all costs,
liabilities, lease payments, obligations and expenses incurred after the
Effective Date relating to all Apartment Leases or Office Leases that are not
Terminated Leases.
(b) Parent will be liable to the Company Indemnified Parties
for any Losses only if the Company or Indemnifying Party deliver to Parent and
Merger Subsidiary written notice, setting forth in reasonable detail the
identity, nature and amount of Company Losses related to such claim or claims
prior to the anniversary of the Effective Time. The Company or Indemnifying
Party's failure to provide the detail required by the preceding sentence shall
not relieve Parent or Merger Subsidiary from any liability that they may have
to the Company or the Indemnifying Party under Section 10.02(b), except to the
extent that the Parent or Merger Subsidiary demonstrates that such failure
prejudiced Parent or Merger Subsidiary with respect to the defense of such
claim.
10.04 Method of Asserting Claims. As used herein, an "Indemnified
Party" shall refer to a "Parent Indemnified Party" or "Company Indemnified
Party," as applicable, the "Notifying Party" shall refer to the party hereto
whose Indemnified Parties are entitled to indemnification hereunder, and the
"Indemnifying Entity" shall refer to the party hereto obligated to indemnify
such Notifying Party's Indemnified Parties.
(a) In the event that any of the Indemnified Parties is made
a defendant in or party to any action or proceeding, judicial or
administrative, instituted by any third party for the liability or the costs or
expenses of which are Losses (any such third party action or proceeding being
referred to as a "Claim"), the Notifying Party shall give the Indemnifying
Entity prompt notice thereof. The failure to give such notice shall not affect
any Indemnified Party's ability to seek reimbursement unless such failure has
materially and adversely affected the Indemnifying Entity's ability to defend
successfully a Claim. If the Indemnified
-44-
<PAGE> 50
Party under a Claim is either Parent or Merger Subsidiary and the Claim arises
within one hundred twenty days of the Closing Date, then Parent or Merger
Subsidiary may also give the Escrow Agent a notice of the Claim, which notice
shall be deemed a "Claim Notice" under the Escrow Agreement. The Indemnifying
Entity shall be entitled to contest and defend such Claim; provided, that the
Indemnifying Entity (i) has a reasonable basis for concluding that such defense
may be successful and (ii) diligently contests and defends such Claim. Notice
of the intention so to contest and defend shall be given by the Indemnifying
Entity to the Notifying Party within 20 business days after the Notifying
Party's notice of such Claim (but, in all events, at least five business days
prior to the date that an answer to such Claim is due to be filed). Such
contest and defense shall be conducted by reputable attorneys employed by the
Indemnifying Entity. The Notifying Party shall be entitled at any time, at
its own cost and expense (which expense shall not constitute a Loss unless the
Notifying Party reasonably determines that the Indemnifying Entity is not
adequately representing or, because of a conflict of interest, may not
adequately represent, any interests of the Indemnified Parties, and only to the
extent that such expenses are reasonable), to participate in such contest and
defense and to be represented by attorneys of its or their own choosing. If
the Notifying Party elects to participate in such defense, the Notifying Party
will cooperate with the Indemnifying Entity in the conduct of such defense.
Neither the Notifying Party nor the Indemnifying Entity may concede, settle or
compromise any Claim without the consent of the other party, which consents
will not be unreasonably withheld. Notwithstanding the foregoing, (i) if a
Claim seeks equitable relief or (ii) if the subject matter of a Claim relates
to the ongoing business of any of the Indemnified Parties, which Claim, if
decided against any of the Indemnified Parties, would materially adversely
affect the ongoing business or reputation of any of the Indemnified Parties,
then, in each such case, the Indemnified Parties alone shall be entitled to
contest, defend and settle such Claim in the first instance and, if the
Indemnified Parties do not contest, defend or settle such Claim, the
Indemnifying Entity shall then have the right to contest and defend (but not
settle) such Claim. If, upon the settlement of a Claim, denial of a final
appeal of a Claim, or failure to appeal the adjudication of such a Claim (all
such events shall be deemed a "Final Determination Event" under the Escrow
Agreement), and (i) the Indemnified Party is entitled to indemnification, (ii)
such Indemnified Party is Parent or Merger Subsidiary, and (iii) pursuant to
the Escrow Agreement, part or all of the Escrow Consideration was retained by
the Escrow Agent pursuant to a Claim Notice relating to such Claim, then the
Escrow Agent shall release the amount due to Parent or Merger Subsidiary upon
submission of proof, satisfactory to the Escrow Agent, of the Final
Determination Event.
(b) In the event any Indemnified Party should have a claim
against any Indemnifying Entity that does not involve a Claim, the Notifying
Party shall deliver a notice of such claim with reasonable promptness to the
Indemnifying Entity. If the Indemnified Party under a claim covered by this
Section 10.04(b) is either Parent
-45-
<PAGE> 51
or Merger Subsidiary and the claim arises within one hundred twenty days of the
Closing Date, then Parent or Merger Subsidiary may also give the Escrow Agent a
notice of such claim, which notice shall be deemed a "Claim Notice" under the
Escrow Agreement. If the Indemnifying Entity notifies the Notifying Party that
it does not dispute the claim described in such notice or fails to notify the
Notifying Party (and the Escrow Agent if a Claim Notice was timely filed)
within 30 days after delivery of such notice by the Notifying Party whether the
Indemnifying Entity disputes the claim described in such notice, the Loss in
the amount specified in the Notifying Party's notice will be conclusively
deemed a liability of the Indemnifying Entity and the Indemnifying Entity shall
pay the amount of such Loss to the Indemnified Party on demand. If the
Indemnifying Entity has timely disputed its Liability with respect to such
claim, the Chief Executive Officers of each of the Indemnifying Entity and the
Notifying Party will proceed in good faith to negotiate a resolution of such
dispute, and if not resolved through the negotiations of such Chief Executive
Officers within 60 days after the delivery of the Notifying Party's notice of
such claim, such dispute shall be resolved fully and finally in Gaithersburg,
Maryland by an arbitrator selected pursuant to, and an arbitration governed by,
the Commercial Arbitration Rules of the American Arbitration Association. The
arbitrator shall resolve the dispute within 30 days after selection and
judgment upon the award rendered by such arbitrator may be entered in any court
of competent jurisdiction. If, upon the settlement of a claim under this
Section 10.04(b), or upon the resolution of the issue by an arbitrator as
provided in this Section 10.04(b) (all such events shall be deemed to a "Final
Determination Event" under the Escrow Agreement), (i) the Indemnified Party is
entitled to indemnification, (ii) such Indemnified Party is Parent or Merger
Subsidiary, and (iii) pursuant to the Escrow Agreement, part or all of the
Escrowed Consideration was retained by the Escrow Agent pursuant to a Claim
Notice relating to such claim, then the Escrow Agent shall release the amount
due to Parent or Merger Subsidiary upon submission of proof, satisfactory to
the Escrow Agent, of the Final Determination Event. The following shall be
deemed satisfactory to the Escrow Agent for purposes of the preceding sentence:
(i) a written agreement of Parent, Merger Subsidiary and the Indemnifying Party
relating to the settlement of the claim or a statement of the Indemnifying
Party that it does not dispute the claim under this Section 10.04(b); (ii) a
final written resolution of the arbitrator with regard to the claim, or (iii)
failure of the Indemnifying Party to dispute a Claim Notice within thirty (30)
days of Indemnifying Party's receipt of a notice of a claim under this Section
10.04(b).
(c) After the Closing, the rights set forth in this Article X
shall be each party's sole and exclusive remedies against the other party
hereto for misrepresentations or breaches of covenants contained in this
Agreement and the Related Documents. Notwithstanding the foregoing, nothing
herein shall prevent any of the Indemnified Parties from bringing an action
based upon allegations of fraud or other intentional breach of an obligation of
or with respect to either party
-46-
<PAGE> 52
in connection with this Agreement and the Related Documents. In the event such
action is brought, the prevailing party's attorneys' fees and costs shall be
paid by the nonprevailing party.
ARTICLE XI
MISCELLANEOUS
11.01 Press Releases and Announcements. Prior to the Effective
Time, no party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of the
Company without prior written approval of the other party hereto, except as may
be necessary, in the opinion of counsel to the party seeking to make
disclosure, to comply with the requirements of applicable law. If any such
press release or public announcement is so required, the party making such
disclosure shall consult with the other party prior to making such disclosure,
and the parties shall use all reasonable efforts, acting in good faith, to
agree upon a text for such disclosure which is satisfactory to both parties.
11.02 Expenses; HSR Filing Fees. Unless otherwise expressly
provided for herein, the Company, Indemnifying Party, the Company Shareholders,
Parent and Merger Subsidiary will each pay all of their own expenses (including
attorneys' and accountants' fees) in connection with the negotiation of this
Agreement, the performance of their respective obligations under this Agreement
and the Articles of Merger and the consummation of the transactions
contemplated hereby and thereby (whether consummated or not). In particular,
(i) Merger Subsidiary shall pay the fees required for the Merger notification
and report filed pursuant to the HSR Act and Parent and Merger Subsidiary's
audit, legal, brokerage and financial advisor fees and all other costs and
expenses incurred by Parent or Merger Subsidiary in connection with the Merger;
and (ii) the Company's legal, brokerage, audit and all other costs and expenses
incurred by the Company in connection with the Merger shall be paid by the
Company prior to the Closing Date, or if paid by the Surviving Corporation
shall be properly accrued on the Closing Date Balance Sheet to the extent so
paid by the Surviving Corporation.
11.03 Amendment and Waiver. This Agreement may not be amended or
waived except in a writing executed by the party against which such amendment
or waiver is sought to be enforced; provided, however, that after the approval
of the Plan of Merger by the shareholders of the Company, no amendment may be
made which effects any changes which would materially adversely affect the
shareholders of the Company without the further approval of the shareholders of
the Company. No course of dealing between or among any persons having any
interest in this Agreement will be deemed effective to modify or amend any part
of this Agreement or any rights or obligations of any person under or by reason
of this Agreement.
-47-
<PAGE> 53
11.04 Notices. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered
or three days after being mailed, if mailed by first class mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Parent, Merger Subsidiary, the Company and Indemnifying Party will, unless
another address is specified in writing, be sent to the address indicated
below:
Notices to Parent or Merger Subsidiary: with a copy to:
Mr. Gary R. Abrahams John T. Kramer, Esq.
President and CEO Dorsey & Whitney LLP
ExecuStay, Inc. 220 South Sixth Street
7595 Rickenbacker Drive Minneapolis, MN 55402
Gaithersburg, MD 20879
Notices to the Company or
Indemnifying Party: with a copy to:
Randy J. Pace Toni Weinstein, Esq.
Trammell Crow Residential Liddell, Sapp, Zivley,
717 North Harwood, Suite 1200 Hill & LaBoon, LLP
Dallas, TX 75201 2001 Ross Avenue,
Suite 3000
Dallas, TX 75201
Michael K. Ording, Esq.
Jones, Day, Reavis & Pogue
1900 Huntington Center
41 South High Street
Columbus, Ohio 43215
-48-
<PAGE> 54
11.05 Assignment. This Agreement and all of the provisions hereof
will be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, except that neither this Agreement
nor any of the rights, interests or obligations hereunder may be assigned by
any party hereto without the prior written consent of the other parties hereto.
11.06 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
11.07 Complete Agreement. This Agreement, the Confidentiality
Agreement, the Articles of Merger and the Related Agreements and other exhibits
hereto, the Disclosure Schedule and the other documents referred to herein
contain the complete agreement between the parties and supersede any prior
understandings, agreements or representations by or between the parties,
written or oral, which may have related to the subject matter hereof in any
way.
11.08 Interpretation. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When any representation
or warranty in Article III is made to the knowledge of the Company, such term
shall mean only the current actual knowledge of the persons listed on Exhibit N
after consultation with the officers and managers of the Company with oversight
responsibilities for the matter that is the subject of the representation
being made, and the current actual knowledge of the persons listed on Exhibit
O. As used herein, "current actual knowledge" shall mean only the actual,
current, conscious (and not constructive, imputed or implied) knowledge of such
persons, and does not include constructive, imputed or implied knowledge of any
other person. Notwithstanding anything herein to the contrary, no person
listed on Exhibits M or N and no Representative shall have any personal
liability or obligation whatsoever with respect to any matter set forth in this
Agreement or any of the representations made by the Company being or becoming
untrue, inaccurate or incomplete in any respect except to the extent of amounts
placed in the Escrow Account payable to such person in his capacity as a
Company Shareholder.
11.09 Amendments to Disclosure Letters. From time to time prior to
five days before the Closing, the Company may provide Parent and Merger
Subsidiary proposed supplements or amendments to the Company Disclosure Letter
with respect to any material matter that is required to be set forth or
described thereon. Unless objected to in writing within 10 days after the date
when Parent and Merger Subsidiary receive the proposed supplement or amendment
(or, if such amendment
- 49 -
<PAGE> 55
or supplement is received by Parent and Merger Subsidiary less than 10 days
prior to Closing, than at least one day prior to Closing), Parent and Merger
Subsidiary shall be deemed to have approved the proposed change.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the
same instrument.
11.11 Governing Law. The internal law, without regard for conflicts
of laws principles, of the State of Maryland will govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
- 50 -
<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
EXECUSTAY CORPORATION
By /s/ Gary Abrahams
-------------------------------
Name: Gary Abrahams
Title: Chief Executive Officer and
President
EXECUSTAY CORPORATION OF AMERICA
By /s/ Gary Abrahams
-------------------------------
Name: Gary Abrahams
Title: Chief Executive Officer and
President
ACCOMMODATIONS AMERICA 1998, INC.
By /s/ Thomas J. Patterson
-------------------------------
Name: Thomas J. Patterson
Title: Vice President
As to Section 10.02 and 10.04 only:
TRAMMELL CROW RESIDENTIAL COMPANY
By /s/ Thomas J. Patterson
-------------------------------
Name: Thomas J. Patterson
Title: Vice President
<PAGE> 57
LIST OF MERGER AGREEMENT EXHIBITS
Exhibit A List of Directors of Parent and Merger Subsidiary
Exhibit B List of Officers of Parent and Merger Subsidiary
Exhibit C Articles of Incorporation of Merger Subsidiary
Exhibit D Representative of the Company Shareholders
Exhibit E Form of Escrow Agreement
Exhibit F List of Roll-Up Entities
Exhibit G Form of Opinion of Counsel to the Company and Indemnifying Party
Exhibit H List of Key Company Employees
Exhibit I Form of Opinion of Counsel to Parent and Merger Subsidiary
Exhibit J Form of Investor, Lock-up and Registration Rights Agreement
Exhibit K Form of Employment Agreement
Exhibit L Form of Non-Competition Agreement
Exhibit M Form of Customer Referral Agreement
Exhibit N List of Knowledge Designee with Duty to Consult
Exhibit O List of other Knowledge Designees
<PAGE> 58
LIST OF SCHEDULES
Company Disclosure Schedule
Schedule 3.05 Required Consents
Schedule 3.07(a) Company Shareholders
Schedule 3.07(b) Agreements to Acquire Company Stock
Schedule 3.09 Undisclosed Liabilities
Schedule 3.11 Absence of Certain Developments
Schedule 3.12(a)(i) Office and Warehouse Leases
Schedule 3.12(a)(ii) Apartment Leases
Schedule 3.12(c) Lien on Tangible Assets
Schedule 3.15 Material Contracts
Schedule 3.16 Intellectual Property
Schedule 3.17 Litigation
Schedule 3.18 Employees
Schedule 3.19 Employee Benefits Plans
Schedule 3.20 Insurance
Schedule 3.22 Customers and Suppliers
Schedule 3.26 Broker's Licenses
Parent Disclosure Schedule
Schedule 4.04 Ownership of Merger Subsidiary Stock
Schedule 4.07(a) SEC Reports
